UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report
For the transition period from to
Commission file number
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Republic of
(Jurisdiction of incorporation or organization)
Lima
(Address of principal executive offices)
Tel.
Lima
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered pursuant to Section 12(b) of the Act:
None
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:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| N/A* |
| * | On November 27, 2023, we filed a Form 25 with respect to the delisting of our American Depositary Shares (“ADSs”) from the |
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, 2023 |
Indicate by check mark if the Registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐
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 ☐
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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.
Indicate by check mark whether the
Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to
submit such files).
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 | ☐ | ☒ | 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 whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☐ | Other ☐ | |||
| by the International Accounting Standards Board | ☒ |
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
Table of Contents
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ii
Part I. INTRODUCTION
Certain Definitions
All references to “we,” “us,” “our,” “our company,” “the Company,” “the Group,” and “AENZA” in this annual report are to AENZA S.A.A. (formerly, “Graña y Montero S.A.A.”), a publicly-held corporation (sociedad anónima abierta) organized under the laws of the Republic of Peru (“Peru”). In this annual report, we refer to our principal subsidiaries, joint operations, joint ventures and associated companies as follows: (i) in our Infrastructure segment: Red Vial 5 S.A. as “Norvial”; Carretera Andina del Sur S.A. as “Survial”; Carretera Sierra Piura S.A.C as “Canchaque”; Tren Urbano de Lima S.A. (formerly, GyM Ferrovías S.A.) as “Línea 1"; Concesionaria La Chira S.A. as “La Chira”; and UNNA Transporte S.A.C. (formerly Concar S.A.C.) as “UNNA Transporte”; (ii) in our Energy segment: UNNA Energía S.A. (formerly GMP S.A.) as “UNNA Energía”; (iii) in our Real Estate segment: Viva Negocio Inmobiliario S.A. (formerly Viva GyM S.A.) as “Viva” and Inmobiliaria Almonte S.A.C. as “Almonte”; and (iv) in our Engineering and Construction (“E&C”) segment: Cumbra Peru S.A. (formerly GyM S.A.) as “Cumbra Peru”; Vial y Vives—DSD S.A. as “Vial y Vives—DSD”; Cumbra Ingeniería S.A. (formerly GMI S.A.) as “Cumbra Ingeniería”; Morelco S.A.S. as “Morelco”. For more information on our subsidiaries, joint operations, joint ventures or associated companies, see Notes 6A, 6B, 6C, 6D, and 14 to our audited annual consolidated financial statements included in this annual report.
The term “U.S. dollar” and the symbol “US$” refer to the legal currency of the United States; the term “sol” and the symbol “S/" refer to the legal currency of Peru; the term “Chilean peso” and the symbol “CLP” refer to the legal currency of Chile; and the term “Colombian peso” and the symbol “COP” refer to the legal currency of Colombia.
Presentation of Financial Information
Our consolidated financial statements included in this annual report have been prepared in soles and in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). Our annual consolidated financial statements as of December 31, 2022 and 2023, and for the years ended December 31, 2022 and 2023 have been audited by Emmerich, Córdova y Asociados S. Civil. de R.L. in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our annual consolidated financial statements as of December 31, 2021 and for the year ended December 31, 2021 have been audited by Moore Assurance S.A.S. (a member firm of Moore Global Network Limited) in accordance with the standards of the Public Company Accounting Oversight Board (United States).
We manage our business in four reportable segments: (i) Infrastructure; (ii) Energy; (iii) Real Estate and (iv) E&C. Prior to 2021, our Energy segment was part of our Infrastructure segment; however, during the fourth quarter of 2021, we changed our segment reporting to separately report our Energy business as its own segment. The historical segment financial information included in this annual report has been adjusted accordingly. For information on our results of operations by operating segment, see Note 7 to our audited annual consolidated financial statements included in this annual report.
Non-IFRS Data
In this annual report, we present Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment, as non-GAAP financial measures. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We present Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment because we believe they provide readers with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis. Our management uses Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin, and Adjusted EBITDA Margin per Segment, among other measures, for internal planning and performance measurement purposes. We believe that Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment are useful in evaluating our operating performance compared to other companies operating in our sectors because the calculation of Adjusted EBITDA generally eliminates the effect of financing and income tax expenses and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. Adjusted EBITDA and Adjusted EBITDA per Segment should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (in each case, as determined in accordance with IFRS). Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment, as calculated by us, may not be comparable to similarly titled measures reported by other companies.
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We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. We define “Adjusted EBITDA Margin” as Adjusted EBITDA divided by revenues. Also, we define “Adjusted EBITDA per Segment” as net (loss) profit per segment plus: financial income and expenses per segment; interests for present value of financial asset or liability per segment; income tax per segment; and depreciation and amortization per segment. We define “Adjusted EBITDA Margin per Segment” as Adjusted EBITDA per Segment divided by revenues per segment.
Currency Translations
Our consolidated financial statements are prepared in soles. For a description of our translation of amounts in currencies other than soles in our consolidated financial statements, see Note 2.C to our audited annual consolidated financial statements included in this annual report.
We have translated some of the soles amounts contained in this annual report into U.S. dollars and some U.S. dollars amounts contained in this annual report into soles, for convenience purposes only. Unless otherwise indicated or the context otherwise requires, the rate used to translate soles amounts to U.S. dollars and U.S. dollars amounts into soles was S/3.713 to US$1.00, which was the average sale exchange rate for December 31, 2023, reported by the Peruvian Superintendence of Banks, Insurance and Private Pension Fund Administrators (Superintendencia de Banca, Seguros y AFPs, or “SBS”). For conversions of macroeconomic indicators (particularly in “Item 5.D. Operating and Financial Review and Prospects—Trend Information” in this annual report), average annual exchange rates for the currencies of each of the countries addressed are used. The Federal Reserve Bank of New York does not report a noon buying rate for soles. The U.S. dollar equivalent information presented in this annual report is provided solely for convenience of the reader and should not be construed as implying that the soles or other currency amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate.
Rounding
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them.
Backlog
This annual report includes our backlog (indicative of future revenues expected to be realized in relation to signed contracts) for part of our Infrastructure, Real Estate and E&C reportable segments. We do not include backlog in this annual report in: (i) our Infrastructure segment for our Norvial toll road concession because its revenues from the concession are derived from toll fees charged to vehicles using the highway, and, as a result, such revenues are dependent on vehicular traffic levels; and (ii) our Energy segment because: (a) our revenues from hydrocarbon extraction services are dependent on the amounts of oil and gas we produce and their market prices, which fluctuate significantly; (b) our revenues from our gas processing plant are dependent on the amount of gas we process and market prices for natural gas liquids, which fluctuate significantly; and (c) our revenues from our fuel storage terminal operation partially depend on the volume of fuel stored and dispatched. When we present backlog on a segment basis, we do not include eliminations that are included in our consolidated backlog. Backlog is not a measure defined by IFRS, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog. Backlog is not audited. We have revised historical backlog data included in this annual report to exclude the presentation of entities that are presented as discontinued operations. For our definition of backlog, see “Item 4.B. Information on the Company—Business Overview—Backlog.” See also “Item 3.D. Key Information—Risk Factors—Risks Related to our Company—Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit.”
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Reserves Estimates
This annual report includes our estimates for proved reserves in Block V, where UNNA Energía provided hydrocarbon extraction services until October 2023, and Blocks III and IV, where UNNA Energía extracts hydrocarbon under license agreements with, Perupetro S.A. (“Perupetro”). These reserves estimates were prepared internally by our team of engineers and have not been audited or reviewed by any independent external engineers. For further information on these reserves estimates, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company—Additional Risks Related to our Infrastructure Business” and “Item 4.B. Information on the Company—Business Overview—Infrastructure—Principal Infrastructure Lines of Business—Energy—Oil and Gas Production.”
Market Information
We make estimates in this annual report regarding our competitive position and market share, as well as the market size and expected growth of the infrastructure, energy, real estate, and E&C services industries in Peru and elsewhere in Latin America. We have made these estimates on the basis of our management’s knowledge and statistics and other information, which we believe to be the most recently available as of the date of this annual report, from government agencies, industry professional organizations, industry publications and other sources. While we believe these estimates to be accurate as of the date of this annual report, we have not independently verified the data from third-party sources and our internal data has not been verified by any independent source. In this annual report we present gross domestic product (“GDP”) both on a nominal and real basis. Real GDP is nominal GDP adjusted to exclude the effect of inflation. Unless otherwise indicated, references to GDP are to real GDP.
Measurements and Other Data
In this annual report, we use the following measurements:
| ● | “m” means one meter, which equals approximately 3.28084 feet; |
| ● | “m2” means one square meter, which equals approximately 10.7630 square feet; |
| ● | “km” means one kilometer, which equals approximately 0.621371 miles; |
| ● | “hectare” means one hectare, which equals approximately 2.47105 acres; |
| ● | “tonne” means one metric ton, which equals approximately 2,204.6 pounds; |
| ● | “bbl” or barrel of oil means one stock tank barrel, which is equivalent to approximately 0.15898 cubic meters; |
| ● | “boe” means one barrel of oil equivalent, which equals approximately 160.2167 cubic meters, determined using the ratio of 5,658 cubic feet of natural gas to one barrel of oil; |
| ● | “cf” means one cubic foot; |
| ● | “M,” when used before bbl, boe or cf, means one thousand bbl, boe and cf, respectively; |
| ● | “MM,” when used before bbl, boe or cf, means one million bbl, boe and cf, respectively; |
| ● | “MW” means one megawatt, which equals one million watts; and |
| ● | “Gwh” means one gigawatt hour, which equals one billion watt hours. |
In this annual report, we use the term “accident incidence rate” with respect to our E&C segment, which is calculated as the number of injuries multiplied by 200,000 (which reflects 40 hours worked per week in a 50-week year by 100 equivalent full-time workers) divided by the total number of hours worked by all full-time employees of our E&C segment during the relevant year.
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Forward-Looking Statements
This annual report contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. These statements involve known and unknown risks, uncertainties, and other factors, including those listed under “Item 3.D. Key Information—Risk Factors,” which may cause our actual results, performance, or achievements to differ materially from the forward-looking statements that we make.
Forward-looking statements typically are identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “project,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. Any or all of our forward-looking statements in this annual report may turn out to be inaccurate. Our actual results could differ materially from those contained in forward-looking statements due to a number of factors, including, among others:
| ● | the impact on our business reputation from our previous and ongoing association with affiliates of Odebrecht S.A. (“Odebrecht”) in Peru and our alleged participation in what is referred to as the “construction club” in Peru; |
| ● | the effects of our agreement with Peruvian prosecutorial authorities (“Final Agreement on Settlement and Cooperation”), which includes, among other restrictions, significant penalties, admissions of guilt, and temporary ban to some companies of the Group from entering into new contracts with the Peruvian government for a period of two years starting from December 2023; |
| ● | the impact of the terms of Law No. 30,737 (which relates certain payments by entities accused of corruption), on our ability to make payments abroad; | |
| ● | our ability to fund our working capital and other obligations, through cash flow from operating activities, financing sources or the sale of assets; |
| ● | our ability to comply with the covenants in our debt instruments or obtain waivers in the event of non-compliance; |
| ● | our ability to obtain financing on favorable terms, or at all, including performance bonds and similar financings required in the ordinary course of our business; |
| ● | our ability to consummate asset sales or other strategic transactions on favorable terms and on a timely basis, or at all; | |
| ● | our ability to conclude our Corporate Reorganization (as defined herein), which is subject to certain conditions, including authorizations to be obtained from certain governmental authorities and private parties; | |
| ● | our ability to transfer assets to trusts; | |
| ● | global macroeconomic conditions, including commodity prices; |
| ● | economic, political and social conditions in the markets in which we operate, including the political disputes between the executive branch and congress in Peru, the appeal of a new constitution in Chile, and the last presidential elections in Colombia; |
| ● | major changes in governmental policies at the national, regional and municipal levels such as in connection with infrastructure concessions, investments in infrastructure and affordable housing subsidies; |
| ● | social conflicts that disrupt infrastructure projects, particularly in the mining sector; |
| ● | interest rate fluctuation, inflation and devaluation or appreciation of the Peruvian sol, or Chilean peso or Colombian peso, in relation to the U.S. dollar (or other currencies in which we receive revenue); |
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| ● | our backlog may not be a reliable indicator of future revenues or profit; |
| ● | the cyclical nature of some of our reportable segments; |
| ● | the level of capital investments and financings available for infrastructure projects of the types that we perform, both in the private and public sectors; |
| ● | competition in our markets, both from local and international companies; |
| ● | volatility in global prices of oil and gas, particularly as a result of the ongoing conflicts in the Middle East and Eastern Europe; |
| ● | changes in real estate market prices, customer demand, preference and purchasing power, and financing availability and terms; |
| ● | our ability to obtain zoning and other license requirements for our real estate development; |
| ● | changes in tax, environmental, health and safety, or other laws and regulations; |
| ● | natural disasters, severe weather or other events that may adversely impact our business; and |
| ● | other factors identified or discussed under “Item 3.D. Key Information—Risk Factors” of this annual report. |
The forward-looking statements in this annual report represent our expectations and forecasts as of the date of this annual report. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this annual report.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of Risk Factors
The following summarizes some, but not all, of the principal risks set forth below. Please carefully consider all of the information discussed in this Item 3.D “Risk Factors” in this annual report for a detailed description of these and other risks.
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Risks Related to Key Developments
| ● | Our reputation has been adversely affected by criminal investigations and administrative proceedings relating to allegations of past corruption. |
| ● | The non-fulfillment of the obligations of the Final Agreement on Settlement and Cooperation could have a material adverse effect on our business, financial condition, and results of operations. | |
| ● | We were in default under certain of our debt instruments in the past, and we cannot assure you that we will not be in default under our debt instruments in the future, or that we will be able to obtain additional waivers in the event of any future defaults. |
| ● | We may not have sufficient cash or access to funding to meet our extraordinary payment obligations. |
| ● | We may be unable to access financing that we need to operate our business on favorable terms or at all. |
| ● | Failure to consumate the Corporate Reorganization may adversely affect the market price of our common shares. |
Risks Related to Our Company
| ● | Global economic conditions could adversely affect our financial performance. |
| ● | We face significant competition in each of our markets. |
| ● | Social conflicts may disrupt infrastructure projects and ongoing operations. |
| ● | Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit. |
| ● | Failure to comply with, or changes in, laws or regulations could have a material adverse effect on our business and financial performance. |
Additional Risks Related to our Infrastructure Business
| ● | Our return on our investment in our concessions may not meet estimated returns. |
| ● | Governmental entities may prematurely terminate our concessions and similar contracts under various circumstances, some of which are beyond our control. |
| ● | We are exposed to risks related to the operation and maintenance of our concessions and similar contracts. |
| ● | We may not be successful in obtaining new concessions. |
Additional Risks Related to our Energy Business
| ● | A substantial or sustained decline in oil prices would adversely affect our financial performance. |
| ● | Our reserves estimates depend on many assumptions that may turn out to be inaccurate and are not subject to review by independent reserve auditors. |
| ● | We may not be able to finance our mandatory capital expenditure requirements in connection with our oil and gas operations and storage and distribution business. |
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Additional Risks Related to our Real Estate Business
| ● | We are exposed to risks associated with the development of real estate. |
| ● | Real estate prices may decline. |
| ● | Our business may be adversely affected if we are not able to obtain the necessary licenses and/or authorizations for our developments on a timely basis. |
| ● | We may experience difficulties in finding desirable land and increases in the price of land may increase our cost of sales and decrease our earnings. |
| ● | Changing market conditions may adversely affect our ability to sell home inventories in our land and at expected prices. |
Additional Risks Related to our E&C Business
| ● | We are vulnerable to the cyclical nature of the end-markets we serve. |
| ● | Decreases in capital investments by our clients may adversely affect the demand for our services. |
| ● | Our business may be adversely affected if we incorrectly estimate the costs of our projects. | |
| ● | We may have difficulty obtaining performance bonds that we require in the normal course of our operations. |
Risks Related to Peru
| ● | Economic, social and political developments in Peru could adversely affect our business and financial performance. |
| ● | Fluctuations in the value of Peruvian sol could adversely affect financial performance. |
| ● | Inflation could adversely affect our financial performance. |
| ● | Earthquakes, severe weather, and other natural disasters could adversely affect our business and financial performance. |
Risks Related to Chile, Colombia, and other Latin American Countries
| ● | We face risks related to our operations outside of Peru. |
Risks Related to our Common Shares
| ● | The delisting of our ADSs from the NYSE and our intended deregistration under the Exchange Act may affect the liquidity and trading price of our common shares. |
| ● | We have identified material weaknesses in our internal control over financial reporting related to our information technology IT systems, and if we cannot maintain effective internal controls or provide reliable financial and other information in the future, investors may lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our common shares. |
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Risks Related to Key Developments
Our reputation has been adversely affected by criminal investigations and administrative proceedings relating to allegations of past corruption
Our reputation has been adversely affected by criminal investigations and administrative proceedings relating to allegations of corruption with respect to events occurred during the period from 2004 to 2016, in connection with the construction and operation of certain infrastructure projects in Peru in which we participated with Odebrecht. Further, our reputation has also been adversely affected by investigations and administrative proceedings arising from our alleged participation in a “construction club” that colluded to procure government contracts during the period from 2002 to 2016. On September 15, 2022, we signed the Final Agreement on Settlement and Cooperation, pursuant to which we acknowledged that certain former directors and senior managers used the Company to commit wrongdoings. As a result, we have agreed to indemnify the Peruvian government for the resulting damages in the amount of S/333.3 million and US$40.7 million, which amount was calculated according to the formula established by Law 30737. The Final Agreement on Settlement and Cooperation was approved by the Peruvian courts on August 11, 2023, and came into force upon its judicial approval, which was notified to AENZA on December 11, 2023. As a result of this approval, the Prosecutor’s Office is obligated pursuant to the terms of the Final Agreement on Settlement and Cooperation, to request the complete exemption of the Company from the scope of Law 30737 and its related regulation with respect to the projects subject to Final Agreement on Settlement and Cooperation.
According to the Final Agreement on Settlement and Cooperation, payment of the indemnification shall be made within twelve years starting December 2023, the date of payment of the first installment, at a legal interest rate in soles and U.S. dollars (3.55% and 1.9% annual interest as of December 31, 2022, and December 31, 2023, respectively). The Company also undertakes to establish a series of guarantees through a trust composed of (i) shares of the Company issued by Cumbra Ingeniería, (ii) property owned by the Company, and (iii) a guarantee account with funds equivalent to the annual installment for the following year. As of December 31, 2023, the Company maintains in its financial statements the total liability associated to the Final Agreement on Settlement and Cooperation in the amount S/469.8 million (S/323 million and US$39.5 million).
Among other conditions, the Agreement includes a restriction for AENZA and its subsidiaries Cumbra Peru and UNNA Transporte to participate in public infrastructure and construction contracts, as well as in road maintenance contracts for two years from the date of the approval of the Final Agreement on Settlement and Cooperation. The other member companies of the Company are not subject to any impediment or prohibition to enter into contracts with the Peruvian government. On December 27, 2023, the indemnification payable under the Final Agreement on Settlement and Cooperation was paid to the Peruvian government in the amount of S/10.3 million and US$1.2 million. Additionally, under the terms of the agreement with the Prosecutor’s Office and with the Attorney General’s Office, we cannot distribute dividends until 40% of the civil penalty is paid.
Our reputation is a key factor in our clients’ evaluation of whether to engage our services, key industry players’ willingness to partner with us, financial institutions’ willingness to provide us credit, and recruiting and retaining talented personnel to our company. Any new charges or news reports containing new allegations against the Company, or other similar developments, could further damage the reputation of the Company.
The non-fulfillment of the obligations of the Final Agreement on Settlement and Cooperation could have a material adverse effect on our business, financial condition, and results of operations
Our company, certain of our subsidiaries, and certain of our former directors and senior managers, have been charged in connection with criminal and civil investigations relating to certain of our projects in connection with our association with Odebrecht and in connection with our alleged participation in what is referred to as the “construction club” during the period from 2004 to 2016.
In 2018, the Peruvian criminal prosecutor charged our company and Cumbra Peru, as criminal defendants in connection with the IIRSA South (tranche II) project concession, and the Peruvian First National Preparatory Investigation Court (Primer Juzgado de Investigación Preparatoria Nacional) included our company and Cumbra Peru in its criminal investigation. Additionally, in December 2018, the Peruvian First National Preparatory Investigation Court also resolved to include our company and Cumbra Peru as civilly liable third parties in the investigations related to the IIRSA South (tranche II) project concession and Cumbra Peru as a civilly liable third party in the investigations related to Tranches 1 and 2 of the Lima Metro.
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In December 2018, Cumbra Peru was formally included as a civilly responsible third party, along with eleven other construction companies, in the criminal investigation conducted by a Peruvian public prosecutor with respect to an alleged “construction club” that colluded to receive public contracts. In October 2021, the prosecutor filed a motion to criminally charged Cumbra Peru and another of our subsidiaries, UNNA Transporte, and other companies in the construction sector in Peru, as well as a former director and former senior managers of our company, with collusion and other alleged crimes.
Additionally, Peruvian prosecutors have included José Graña Miró Quesada, the former Chairman of our company, and Hernando Graña Acuña, a former board member of our company and former chairman of Cumbra Peru, in an investigation for the crimes of collusion and money laundering against the Peruvian government, respectively, each in connection with the IIRSA South (tranche II) project concession, in which we participated with Odebrecht. Gonzalo Ferraro Rey, the former Chief Infrastructure Officer of our company, has also been included in an investigation for the crime of money laundering in connection with the same project. In addition, José Graña Miró Quesada, Hernando Graña Acuña and Juan Manuel Lambarri, the former chief executive officer of Cumbra Peru, have been charged in connection with Tranches 1 and 2 of the Lima Metro. On February 9, 2022, the Peruvian press reported that Peruvian prosecutorial authorities entered into the plea agreements with José Graña Miró Quesada and Hernando Graña Acuña. On January 3, 2023 and January 18, 2023, the plea agreements with José Graña Miró Quesada and Hernando Graña Acuña, respectively, received judicial approval. The plea agreements are confidential under Peruvian law and, therefore, we do not know their content. However, such agreements may include information related to wrongdoing or knowledge of improper behavior while José Graña Miró Quesada and Hernando Graña Acuña were at the Company. We cannot assure you what they will ultimately say to government authorities, or that their statements will not adversely affect the Company’s reputation.
Following internal investigations of the events covered by the criminal investigations described above, the Company provided all evidence found during its internal investigation to Peruvian prosecutorial authorities within the framework of a settlement and cooperation agreement process, in line with the Company’s commitment to transparency and integrity. On September 15, 2022, we entered into the Final Agreement on Settlement and Cooperation with Peruvian prosecutorial authorities which was approved by the Peruvian courts on August 11, 2023. and came into force upon its judicial approval, which was notified to the Company on December 11, 2023.
According to the terms of the Final Agreement on Settlement and Cooperation, the civil penalty would cover the total contingency to Peruvian prosecutorial authorities to which the Company is exposed as a result of the investigations of past projects in which the Company participated with Odebrecht (other than the Chavimochic project, criminal investigation in connection with the Company which is closed) and investigations relating to an alleged participation in the “construction club” (excluding the separate administrative proceedings by the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (“INDECOPI”)).
We cannot assure you that our company will be able to comply with the obligations related to the Final Agreement on Settlement and Cooperation.
We are subject to the terms of Law No. 30737 that, among other matters, imposes limitations on our ability to make money transfers abroad from Peru
We are in the process of obtaining our and Cumbra Peru’s removal from the “List 2” category of Law No. 30737, as contemplated in the final judgment that approves the Final Agreement on Settlement and Cooperation which sets forth our and Cumbra Peru’s exclusion from the application of Law No. 30737.
As of the date of this annual report, we and Cumbra Peru are included in List 2 of Law No. 30737, which provides for certain legal restrictions in order to ensure the payment of potential damages to the Peruvian government resulting from corruption activities. Companies subject to List 2 are, among other things, restricted from making payment transfers abroad without prior approval from the Ministry of Justice. According to Law No. 30737, a plea agreement can exempt companies subject to such law from its application. Accordingly, the Final Agreement on Settlement and Cooperation, which has been approved (homologado) by final judgment issued by Peruvian courts, provides our and Cumbra Peru’s exclusion from the application of Law No. 30737. Although the Peruvian prosecutorial entities party to the Final Agreement on Settlement and Cooperation have requested our exclusion from List 2 to the Ministry of Justice, our and Cumbra Peru’s removal from List 2 is still pending as described below.
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The Ministry of Justice, in charge of enforcing Law No. 30737, considers Cumbra Peru and us still subject to its restrictions while it processes the exemption request made by us and the Peruvian prosecution authorities based on the Final Agreement on Settlement and Cooperation. As a result, we continue to be restricted to make transfers abroad until the Ministry of Justice approves such request. Under Law No. 30737, we can request approval from the Ministry of Justice to make transfers abroad, as we have done in the past, and the restriction does not prevent third parties, including other companies within the Aenza group or trustees, from making such payments.
We cannot guarantee that the Ministry of Justice will not argue that payments through third parties are also restricted under Law No. 30737. In addition, although the Final Agreement on Settlement and Cooperation does not specifically address potential consequences from non-compliance of Law No. 30737, we cannot guarantee third parties will not try to argue that transfers abroad are in breach of Law No. 30737 or the agreement, until the Ministry of Justice confirms the exclusion of Aenza and Cumbra Peru from List 2.
In addition, we have also the right to request our exclusion from List 2 to Peruvian courts based on the Final Agreement on Settlement and Cooperation. We have yet to initiate such alternative given that the request made by us and the Peruvian prosecution authorities is currently undergoing the administrative proceeding before the Ministry of Justice.
If we do not comply with applicable laws and regulations designed to combat corruption, we could become subject to fines, penalties or other regulatory sanctions, and our business could suffer
Although we are committed to conducting business in a legal and ethical manner in compliance with local and international legal requirements applicable to our business, as well as with our specific policies and procedures to avoid corrupt actions, there is a risk that our employees or representatives may take actions that violate applicable laws and regulations that generally prohibit the making of improper payments to government officials for the purpose of obtaining or keeping business. Such laws and regulations include, among other things, laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or the U.S. Foreign Corrupt Practices Act. Further, despite us having obtained Global STD ISO 37001 anti-bribery certifications for our subsidiaries, if any of our employees or representatives violate anti-corruption laws, our business, financial condition, and results of operation would be adversely affected.
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We were in default under certain of our debt instruments in the past, and we cannot assure you that we will not be in default under our debt instruments in the future, or that we will be able to obtain additional waivers in the event of any future defaults
In the past we have been in default on financial covenants and payment obligations under certain of our debt instruments. These defaults have been cured as of the date of this annual report either with the obtainment of waivers or through the repayment in full of these debt instruments. However, we cannot assure you that we will not breach the covenants under our debt instruments in the future and, in such event, that we would be able to obtain the required waivers from our creditors. Failure to successfully obtain waivers could force us to precipitate the sale of assets, including on unfavorable terms, to repay these debt instruments. Moreover, if we are not able to renegotiate the terms of any debt instruments in which we are in default, or repay them promptly, our ability to obtain financings, including performance guarantees or similar financings required under many of our business contracts, would be impaired, which may have a material adverse effect on our business, financial condition and results of operations.
We may not have sufficient cash or access to funding to meet our extraordinary payment obligations
We have significant extraordinary payment obligations. On September 15, 2022, we entered into the Final Agreement on Settlement and Cooperation with Peruvian prosecutorial authorities which was approved by the Peruvian courts on August 11, 2023, as explained herein. On December 27, 2023, the indemnification payable under the Final Agreement on Settlement and Cooperation was paid to the Peruvian government in the amount of S/10.3 million and US$1.2 million. As of December 31, 2023, the Company maintains in its financial statements the total liability associated to the Final Agreement on Settlement and Cooperation in the amount S/469.8 million (S/323 million and US$39.5 million).
On March 17, 2022, the Company entered into a bridge loan agreement for up to US$ 120 million (S/ 445.6 million), with a group of financial institutions comprised by Banco BTG Pactual S.A. – Cayman Branch, Banco Santander Peru S.A., HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC, and Natixis, New York Branch. The financing was expected to be repaid over a period of 18 months, in quarterly interest installments and is secured, subject to the fulfillment of certain conditions precedent, by a flow trust (first lien), a pledge over the shares in Unna Energia S.A. (first lien), and a trust on the shares of Viva Negocio Inmobiliario S.A.C. (second lien). On October 5, 2023, and December 27, 2023, payments of US$ 8 million (S/29.7 million) and US$ 12 million (S/ 44.6 million), respectively, were made under the bridge loan agreement. In addition, on December 27, 2023, the term extension of the bridge loan agreement was signed for up to US$ 100 million (S/371.1 million) for a period of twelve months payable in quarterly interest installments.
As of December 31, 2023, amounts outstanding under the loan were US$102.3 million (S/379.9 million), comprising principal of US$100.0 million (S/371.3 million), plus interest and net deferred charges of US$2.3 million (S/8.6 million).
We cannot assure you that we will have sufficient cash from operations, any sale of assets, or access to equity or debt financing, in order to comply with payments regarding our agreements, or that following any such payments, we will have sufficient cash to continue to operate our business consistent with past practices. In addition, in relation to debt financing, interest rate increases may affect our ability to refinance at competitive rates and may have an adverse impact on results.
We may not generate sufficient cash flow at the level of the Company to meet our debt service obligations
Our ability to generate sufficient cash flow from operations at the level of the Company will depend on our receipt of distributions from our restricted subsidiaries, which in turn will be affected by a range of economic, competitive, and business factors, many of which are outside of our control. We cannot assure you that we will generate sufficient cash flow at the level of the Company or that future sources of cash will be available to us on favorable terms, or at all, in an amount sufficient to enable us to meet our debt service obligations. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, we would likely have to undertake alternative actions, such as refinancing or restructuring our debt, selling assets, reducing, or delaying capital investments or seeking to raise additional capital. We may not be able to consummate any such transaction at all or on a timely basis or on terms, and for proceeds, that are acceptable to us. These transactions may not be permitted under the terms of our various debt instruments then in effect. Failure to generate sufficient cash flow at the Company level (including through the receipt of distributions from our subsidiaries) could have a material adverse effect on our ability to satisfy our debt obligations.
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We may be unable to access financing that we need to operate our business on favorable terms or at all
Due to uncertainty relating to the investigations of our company, our creditors and other financial institutions have placed restrictions in the past on our ability, and the ability of other Peruvian construction companies, to acquire future credit lines, performance bonds, and other financings.
Our ability to obtain financings will also depend in part upon prevailing conditions in credit and capital markets, which are beyond our control. Emerging markets have been affected by changes in U.S. monetary policy, resulting at times in a withdrawal of investments and increased volatility in the value of their currencies. If interest rates rise significantly in the United States, emerging market economies, including Peru, could find it more difficult and expensive to borrow capital and refinance existing debt. Higher interest rates globally or in Peru would in turn impact our costs of funding.
We cannot assure you that we will be able to obtain new financings in the future on favorable terms or at all. Additionally, we cannot control or predict changes in interest rates, including interest rate policies of the Central Reserve Bank of Peru and the U.S. Federal Reserve.
Also, we may encounter difficulties in obtaining performance bonds or credit support that we require to secure, among other things, bids, advance payments, and performance for our projects.
The inability to procure adequate financing or credit on favorable terms or at all could have a material adverse effect on our business, financial condition, and results of operation.
There is uncertainty with regard to the amount, timing, and manner in which the payment for the termination of the GSP gas pipeline concession will be paid
In November 2015, we acquired a 20% interest in Gasoducto Sur Peruano S.A. (“GSP”) and obtained a 29% interest in Consorcio Constructor Ductos del Sur (“CCDS”) through its subsidiary Cumbra Peru.
On July 22, 2014, GSP signed a concession agreement with the Peruvian government to build, operate, and maintain a natural gas pipeline to meet the demand of cities in the south of Peru (the “GSP Concession Agreement”). Under the GSP Concession Agreement, the Company made an investment of US$ 242.5 million (S/ 811 million) and assumed 21.49% of a performance bond for US$ 262.5 million and 21.49% of the guarantee for a bridge loan of US$ 600 million. On January 24, 2017, the Peruvian Ministry of Energy and Mines (“MEM”) announced the early termination of the GSP Concession Agreement. According to the GSP Concession Agreement, the guarantees were paid on behalf of GSP, therefore, AENZA recognized the right to collect from GSP in the amount of US$ 181.5 million, which were recorded in 2016 as accounts receivable from related parties. Likewise, Cumbra Peru recognized the value of accounts receivable from CCDS in the amount of US$ 73.5 million and lost profits for US$ 10 million, which correspond to receivables from GSP.
Upon termination of the GSP Concession Agreement the Peruvian state was obligated to hire an internationally recognized auditing firm to calculate the net book value of the concession assets (“VCN”), and to call up to three auctions on GSP’s assets. However, to date, the Peruvian state has failed to comply with these contractual obligations. The amount of the VCN was calculated at US$2,602 million by an independent auditing firm hired by GSP as of December 31, 2016. On December 21, 2018, the Company requested from the Peruvian state the payment of the VCN in favor of GSP and on October 18, 2019, the Company filed an arbitration request with the International Centre for Settlement of Investment Disputes (“ICSID”). On December 27, 2019, the Company withdrew the arbitration request in compliance with a preliminary collaboration and benefits agreement signed with the Attorney General’s Office and Ad-hoc Public Prosecutor’s Office on the same date (see Note 1 to our audited annual consolidated financial statements included in this annual report).
The Company and its internal and external legal advisors consider that the payment owed by the Government to GSP for the VCN are not within the scope under Law 30737 that ensures the immediate payment of civil compensation in favor of the Peruvian state in cases of corruption and related crimes, since this payment does not include any profit margin and/or does not correspond to the sale of assets related to the project, but to a reimbursement for the investment made by the concessionaire.
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As of December 4, 2017, GSP entered into a bankruptcy proceeding before INDECOPI. GSP has claims recognized by INDECOPI of US$0.4 million and US$169.3 million, the latter held in trust in favor of GSP’s creditors. It also has indirectly recognized claims for US$11.8 million. On the other hand, the claim of Cumbra Peru is indirectly recognized in INDECOPI through Consorcio Constructor Ductos del Sur in an amount of US$88.7 million. As of the date of this annual report, GSP is in the process of liquidation and AENZA is chairing the creditor committee.
On April 11, 2023, a liquidation agreement (the “Liquidation Agreement”) was approved, under which the liquidator requested the MEM to initiate the direct treatment (trato directo), an alternative dispute mechanism for public contracts whereby the parties directly renegotiate and reinterpret the agreement prior to submitting any dispute before a judge. On September 12, 2023, INDECOPI notified GSP of Resolution No. 4069-2023/CCO-INDECOPI which resolved to declare null and void the committee’s resolution approving the Liquidation Agreement. On November 21, 2023, the meeting of creditors was held with the purpose of correcting the committee’s resolution through the approval of a new liquidation agreement. However, this proposal did not reach the qualified majority required by law for its approval. Likewise, on the same day, the chairman of the committee, as well as other creditors requested INDECOPI to declare the liquidation of GSP. On January 29, 2024, a liquidation agreement was executed by Alva Legal Asesoría Empresarial S.A.C. and GSP’s creditors, represented by the Company as chairman of the creditor committee, regarding the dissolution and liquidation of GSP.
On December 28, 2023, INDECOPI ordered the ex officio liquidation of GSP and, as of the date of this annual report, the liquidation process of GSP continues its course, as well as the necessary actions for the recovery of VCN. As of December 31, 2023, the net value of the account receivable from GSP is US$ 142.4 million, equivalent to S/527.7 million (US$ 146.0 million equivalent to S/557.7 million at December 31, 2022), which is comprised of receivables held by the following entities of the Group: (i) AENZA holds US$ 63.9 million (S/236.6 million) discounted to present value net of impairment and the effect of the exchange difference (US$ 65.4 million equivalent to S/249.8 million at December 31, 2022) and; (ii) Cumbra Peru holds US$ 78.5 million (S/291.1 million) discounted to present value, net of the effect of the exchange difference (US$ 80.5 million equivalent to S/307.5 million at December 31, 2022).
The Company’s management maintains the recovery estimate in eight years, applying a discount rate of 5.86% as of December 31, 2022 and 2023. These estimates generated during 2022 a present value effect of S/72.2 million loss, which has been recognized in the consolidated statement of profit or loss under the caption “Interest for present value of financial asset or liabilities.”
Failure to consumate the Corporate Reorganization may adversely affect the market price of our common shares.
On February 7, 2024, a general shareholders’ meeting of the Company approved the Corporate Reorganization, according to which the new structure of the Group will consist of two new holding companies, one that groups the E&C businesses and another one which groups the infrastructure and energy businesses. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Key Developments—Corporate Reorganization.” Viva Negocio Inmobiliario S.A.C. will be maintained as the vehicle for the real estate development business. The Corporate Reorganization is subject to certain conditions, including authorizations to be obtained from certain governmental authorities and third parties regarding concessions agreements, debt agreements, and services agreements. If these conditions are not satisfied, we will not be able to consummate the Corporate Reorganization. Failure to consumate the Corporate Reorganization may adversely affect the market price of our common shares, which may impact our reputation and thereby adversely affect our financial performance.
Risks Related to Our Company
Global economic conditions could adversely affect our financial performance
Global economic conditions, in particular fluctuations in commodity prices and financing costs, may impact our clients’ investment decisions. Should our clients choose to postpone or suspend new investments or delay or cancel the execution of existing projects as a result of global economic conditions, demand for our products and services would decline, which may result in a decline in revenues and in under-utilization of our capacity. Our business may be impacted by adverse economic developments even after economic conditions have improved because of the time lag between when investments decisions are made and when the projects are executed. Furthermore, financial difficulties suffered by our clients, joint operation partners, subcontractors, or suppliers due to global economic conditions could result in payment delays or defaults or increase our costs or adversely impact our project execution. Accordingly, a global economic downturn could have a material adverse effect on our financial performance.
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Interest rates have risen across markets and have impacted our ability to refinance our debt. U.S. Federal Reserve Fund policymakers expect that the U.S. Federal Reserve Fund Rate will be between 4.5% and 4.75% by year-end. This could increase our financing costs and limit our ability to obtain financing in a timely manner and on acceptable terms. In addition, we are experiencing high levels of inflation in each country where we operate. Although during 2023 inflation has been decreasing and interest rates have been declining, inflation and interest rates have not yet recovered the expansion levels of 2021. The Central Bank of Chile reduced its rates to 7.25% in February 2024, the Central Bank of Peru to 6.25% in February 2024, and the Banco de la República of Colombia to 12.25% in March 2024. Current global economic conditions could adversely affect our financial performance.
We face significant competition in each of our markets
Each of the markets in which we operate is competitive. We compete on the basis of, among other factors, price, performance, product and service quality, skill and execution capability, client relations, reputation and brand, and health, safety and environmental record. We face significant competition from both local and international players. Some of these competitors may have greater resources than us or may have specialized expertise in certain sectors. In addition, a portion of our business is derived from open bidding processes which can be highly competitive. Certain of our markets are highly fragmented with a large number of companies competing for market share. Our competitors may be more inclined to take greater or unusual risks or accept terms and conditions in a contract that we might not deem acceptable. Moreover, we cannot assure you that we will not face new competition from industry players entering or expanding their operations in our markets. If we are unable to compete effectively, our ability to continue to grow our business or maintain our market share would be affected. In addition, because one of the factors on which we generally compete is price, increased competition could impact our operating margins. Accordingly, our business and financial performance could be adversely affected by competition in our markets.
A major change in government policies could affect our business
Our business is significantly affected by national, regional, and municipal government policies and regulations in the countries where we operate, including with respect to infrastructure concessions or similar contracts to the private sector, public spending in infrastructure investment and government housing subsidies, among others. Any adverse change in government policies with respect to these matters could result in a material adverse effect on our business and financial performance.
Social conflicts may disrupt infrastructure projects and ongoing operations
Despite Peru’s economic growth over the last decades, high levels of poverty and unemployment and social and political tensions continue to be pervasive problems in the country. Peru has, from time to time, experienced social and political turmoil, including riots, nationwide protests, strikes and street demonstrations. In recent years, certain regions experienced strikes and protests related mainly to the environmental impact of mining activities, which resulted in commercial disruptions. These protests may lead to the suspension of mining projects, such as occurred at Las Bambas mining project during the second half of 2021. Social conflicts may disrupt, delay or suspend infrastructure projects in the future, which could have a material adverse effect on our business, financial performance and our concessional infrastructure.
During 2023, high inflation and a political crisis caused civil unrest and rioting, including strikes and the blockade of main roads, which has affected business operations in certain regions of the country, particularly during the first quarter of the year. On December 7, 2022, Peru’s former President Pedro Castillo announced the dissolution of Congress and was arrested. Dina Boluarte, Castillo’s first vice president, was sworn in as president the same day to serve until July 2026. Following Mr. Castillo’s impeachment, a wave of protests arose across the country, which led President Boluarte to declare a state of emergency in several regions in Perú on December 12, 2022. Amidst these protests, President Boluarte has made a series of proposals to Congress to approve early elections, however, Congress has not obtained sufficient votes to accelerate the presidential elections. Despite the decrease in the intensity and frequency of social disturbances since December 2022, the current government has not managed to generate a sufficient level of confidence. This lack of confidence has contracted private investment and hindered the initiation of new projects of magnitude. During the first quarter of 2024, the Peruvian prosecutor’s office has initiated preliminary investigations against President Dina Boluarte for her irregular alleged possession of a collection of Rolex watches and luxury jewelry that has put her at the centre of a corruption investigation.
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Chile’s GDP growth was 0.2% in 2023. After the December 2023 referendum rejected making changes to the current Constitution, business confidence has improved compared to the government’s initial levels, but political uncertainty is expected to have a negative impact on investment growth in 2024. The political situation may result in further social unrest and protest, and could also result in substantial structural changes in Chile that could adversely impact the private sector, including our operations in the country. However, demand for minerals is expected to continue to support exports.
Colombia’s presidential election in June 2022 resulted in the victory of Gustavo Petro of the left coalition. Colombia has a history of prudent macroeconomic and fiscal management, which provides a good basis to ensure macroeconomic stability. Colombias’s GDP grew only 0.6% in 2023 given that external demand remained weak. However, the better performance of inflation allowed the Central Bank to reduce the interest rate in March 2024, with a cut of 50 basis points to 12.25%.
New projects may require the prior approval of local indigenous communities
The legislative branches of Colombia, Chile and Peru have enacted legislation in accordance with the International Labor Organization Convention No. 169 (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios, Reconocido en el Convenio 169 de la Organización Internacional del Trabajo) that establishes prior non-binding consultation procedures (procedimiento de consulta previa) with respect to indigenous communities.
Under these laws the government must carry out non-binding consultation procedures with local indigenous communities, whose rights may be directly affected by new legislative or administrative measures, including the granting of certain permits or new concessions or similar contracts, such as for mining, energy and oil and gas projects. Local indigenous communities do not have a veto right; and therefore, upon completion of this prior consultation procedure, the government retains the discretion to approve or reject the applicable legislative or administrative measure. However, we cannot assure you that these consultation procedures will not negatively influence a decision by government to grant us a permit, concession or consent and, therefore, adversely affect new projects and concessions, or cause or incite confrontation if the government’s decision is perceived to be adverse to the communities’ opinion. Accordingly, our business and financial performance may be materially and adversely affected.
Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit
The amount of our backlog is not necessarily indicative of future revenues or profits related to the performance of the related contracts. Our backlog amount is subject to revision over time and our ability to realize revenues from our backlog is subject to a number of uncertainties. Cancellations, scope adjustments or deferrals may occur, from time to time, with respect to contracts reflected in our backlog and could reduce the amount of our backlog and the revenue and profits that we actually earn. Contracts may also remain in our backlog for an extended period of time and poor performance could also impact our profit from the contracts in our backlog. In addition, our backlog is expressed in U.S. dollars based on period-end exchange rates while a significant portion of our contracts are payable in soles or other local currencies. As a result, any depreciation of local currency would diminish the amount of revenues eventually earned relative to backlog.
Our backlog may decline in the future. We cannot assure you that we will be able to obtain sufficient contracts in the future in number and magnitude in order to increase our backlog. Additionally, the number of new contracts that we obtain can fluctuate significantly from period to period due to factors that are beyond our control.
Moreover, the ratio of our historical backlog to revenues earned in subsequent years is volatile and substantially affected by a number of factors, some of which are outside our control, including levels of contract scope adjustments and our ability to enter into new contracts (which are substantially influenced by general macroeconomic conditions), delays and cancellations, foreign exchange rate movements and our ability to increase the scale of our operations to expand the amount of work we carry out beyond that previously contracted. Accordingly, historical correlations between backlog and revenues may not recur in future periods.
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We might be negatively affected by volatility in interest rates
Interest rates are highly sensitive to many factors beyond our control, including monetary policies pursued by the Central Bank of Peru, fiscal policies of the Peruvian government and domestic and international economic and political conditions, and we might be unable to take actions to mitigate any adverse effects of interest rate movements. In particular, we might be affected by the policies of the Central Bank of Peru with respect to interest rates and reserve requirements. Although we use measures to manage exposures to interest rate risk, these instruments and measures might not protect us from the risks of changing interest rates.
The outbreak and spread of a pandemic and other large-scale public health events could have a material adverse effect on the Group’s business, financial condition and results of operations
Economic conditions in the countries where we operate may be adversely affected by an outbreak of a contagious disease, such as COVID-19, which may develop into a regional or global pandemic and other large scale public health events. The measures taken by governments, regulators and businesses to respond to any such pandemic or event may lead to slower or negative economic growth, supply disruptions, inflationary pressures and significant increases in public debt. Such measures could also impact the business and operations of third parties that provide critical services to us.
If the outbreak of a new pandemic or another large-scale public health event were to occur in the future, we may experience an adverse impact, which may be material, on our business, financial condition and results of operations, including as a result of the exacerbation of any of the other risks described in this section.
Our success depends on key personnel
Our success depends, to a significant degree, upon the performance of our senior management, Board of Directors and other key personnel. Members of our management team are not subject to non-competition agreements with us. We cannot assure you that we will be successful in retaining our current senior management or members of our Board of Directors, nor can we assure you that, in such event, we would be able to find suitable replacements. In addition, the success of our business depends on our ongoing ability to attract, train and retain qualified engineers and other personnel. In recent years, the availability in Peru of qualified personnel who have the necessary expertise and experience has been lower than demand and, therefore, competition for human resources has become intense. We cannot assure that we will be able to hire and retain the number of qualified personnel required to meet the needs of, or to grow, our business. If we are unable to attract, train and retain the qualified personnel that we require at reasonable cost, our business and financial performance could be adversely affected.
Our success depends, to a large extent, on our reputation for the quality, reliability, timely delivery and safety of our products and services
We believe our track record and reputation are key factors in our clients’ evaluation of whether to engage our services and purchase our products, encouraging key industry players to partner with us, and recruiting and retaining talented personnel to our company. Our reputation is based, to a large extent, on the quality, reliability, timeliness and safety of our products and services. If our products do not meet expected standards or we fail to meet our deadlines, our relationship with our clients and partners could suffer, the reputation of our company could be adversely affected, we may not be invited to new bidding processes and our ability to capture new business could be severely diminished.
The nature of our business exposes us to potential liability claims and contract disputes
We may be subject to a variety of legal or administrative proceedings, liability claims or contract disputes. The government, clients and other third parties may present claims against us for injury or damage caused, directly or indirectly, by our operations, for example for alleged failures in our E&C segment, the operation of our infrastructure concessions (such as our toll roads or the Lima Metro), and real estate developments we sell. Although we have a range of insurance coverage policies and have adopted risk management and risk avoidance programs designed to reduce potential liabilities, a catastrophic event resulting from the services we have performed or products we have provided could result in significant professional or product liability, warranty or other claims against us as well as reputational harm, especially if public safety is impacted. Additionally, under the terms of certain of our agreements, we are required to provide performance bonds, letters of credit, or similar instruments in order to cover contingencies in respect of any construction, operation, concessions, public-private partnership and real estate obligations in the ordinary course of business. We may in the future be named as a defendant in legal proceedings where our clients or third parties may make a claim for damages or other remedies with respect to our projects or other matters. Any liability not covered by our insurance, or in excess of our insurance limits, could result in a significant loss for us, which may affect our financial performance.
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We may not be able to recover on claims against clients for payment
If a client fails to pay our invoices on time or defaults in making its payments to us, we could incur significant losses. We occasionally bring claims against clients for delayed payments, additional costs that exceed the contract price or for amounts not included in the original contract price, including change orders. These types of claims can occur due to matters such as owner-caused delays or changes from the initial project scope, and, occasionally, these claims may be disputed through lengthy proceedings. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. Moreover, we have recently encountered difficulties collecting on claims, even following successful arbitration awards, particularly against the government. A failure to promptly recover on these types of claims and change orders could have a material adverse effect on our financial performance.
We are susceptible to operational risks that could affect our business and financial performance
Our business is subject to numerous industry-specific operational risks, including natural disasters, adverse weather conditions, operator errors or other accidents, such as spillovers in the energy business, mechanical and technical failures, explosions and other events and accidents, many of which are beyond our control. Such occurrences could result in injury or loss of life, severe damage to and destruction of property and equipment, business interruption, pollution and other environmental damage, clean-up responsibilities, regulatory requirements, investigations and penalties, potential liability claims and contractual disputes. In addition, such occurrences could materially impact our reputation. Although we maintain comprehensive insurance covering our assets and operations at levels that our management believes to be adequate, our insurance coverage will not be sufficient in all circumstances or to protect against all hazards. The occurrence of such an operational risk could have a material adverse effect on our business and financial performance.
Deterioration in our safety record could adversely affect our business and financial performance
Our ability to retain existing clients and attract new business is dependent on our ability to safely operate our business. Existing and potential clients consider the safety record of their services providers to be of high importance in their decision to award service contracts. Some of our activities, in particular in our E&C segment, can be high risk by their nature. If one or more accidents were to occur at a site, the affected client may terminate or cancel our contract and may be less likely to continue to use our services. Although our track record on safety matters is consistent with industry standards, we cannot assure you that we will not experience accidents in the future, causing our safety record to deteriorate. Accidents may be more likely as we continue to grow, particularly if we are required to hire less experienced employees due to shortages of skilled labor. Moreover, often times we do not perform these activities by ourselves and accidents can happen due to errors committed by partners and subcontractors over whom we have no control. Because many of our clients require us to report our safety metrics to them as part of the bidding process and because a substantial part of our client base is comprised of major companies with high safety standards, a general deterioration in our safety record could have a material adverse impact on our business including our ability to bid for new contracts.
Any safety incidents or deterioration in our safety record could adversely impact our ability to attract and retain qualified employees. In addition, we could also be subject to liability for damages as a result of accidents and could incur penalties or fines for violations of applicable safety laws and regulations.
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Increases in the prices of energy, raw materials, equipment or wages could increase our operating costs
Our business requires significant purchases of energy, raw materials and components, including, among others, large quantities of fuel, cement and steel, as well as purchases or leases of equipment. Certain supplies used in our operations are susceptible to significant fluctuations in prices, over which we may have little control. The prices of some of these supplies are affected to a significant extent by the prices of commodities, such as oil and iron. Global oil prices decreased in 2018, increased in 2019, declined significantly in 2020 as a result of the COVID-19 pandemic but reached pre-COVID-19 levels by the end of 2020, increased in 2021 due to supply shocks and the resurgence of demand, and, more recently, rose sharply in early 2022 due to the conflict between Ukraine and Russia.
Although during 2023 the prices of inputs, including fuels and oil derivatives, decreased, we cannot assure you that oil prices will continue to decrease in the future (although increased oil prices would benefit revenues in our Energy segment). Substantial increases in the prices of such commodities generally result in increases in our suppliers’ operating costs and, consequently, lead to increases in the prices they charge for their products. Moreover, we do not have long-term contracts for the supply of our key inputs, and, as a result, if prices increase significantly or if we are required to find alternative suppliers, our costs to procure these inputs may increase significantly. In addition, growing demand for labor, especially when coupled with shortages of qualified employees in the countries where we operate, may result in significant wage inflation. To the extent that we are unable to pass along to our clients increases in the prices of our key supplies or increases in the wages that we must pay, our operating margins could be materially adversely impacted.
If we are unable to enter into consortia or other strategic alliances, our ability to compete for new business may be adversely affected
We may join with other companies to form joint operations or other strategic alliances to compete for a specific concession or contract, including with partners that contribute expertise in a specific field. Because a consortium or alliance can often offer stronger combined qualifications than a company on a stand-alone basis, these arrangements can be important to the success of a particular bid. If we are unable to enter into consortia or other strategic alliances, our ability to compete for new business may be adversely affected.
Our consortia and other strategic alliances may be affected by disputes with, or the unsatisfactory performance by, our partners
Although we have a thorough partner selection process, consortia and other strategic alliances that we enter into as part of our business, including arrangements where operating control may be shared with unaffiliated third parties, may involve risks not otherwise present when we operate independently, including: sharing approval rights over major decisions; responsibility for our partners’ unpaid obligations or liabilities; ensuring ethical and compliance behavior; our partners’ capacity to contribute with their share of project capital expenditures and inconsistencies in our and our partners’ economic or business interests or goals. Any disputes between us and our partners may result in delays, litigation or operational impasses. We may also incur liabilities as a result of action taken by or against our partners. In addition, if we participate in consortia or other strategic alliances where we are not the controlling party, we may have limited control over operational, financial and other management decisions and actions and the success of the consortium or other strategic alliance will depend largely on the performance of our partners. These risks could adversely affect our ability to transact the business of such consortium or other strategic alliance and could result in the termination of the applicable concession or contract. Under these circumstances, we may be required to make additional investments and provide additional services to ensure adequate performance and delivery. These additional obligations could result in reduced profits or, in some cases, increased liabilities or significant losses for us. In addition, failure by a partner to comply with applicable laws or regulations could negatively impact our business and, in the case of government contracts, could result in fines, suspension or even debarment from participating in bidding processes. As a result, our business, reputation and financial performance could be adversely affected by disputes involving our consortia or other strategic alliances.
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We are dependent upon third parties to complete many of our contractual obligations
We rely on third-party suppliers to provide a significant amount of the materials and equipment used in our businesses. A portion of the work performed under our infrastructure concessions, and to a lesser extent, other contracts is performed by third-party subcontractors. As a result, the timely completion and quality of our projects may depend on factors beyond our control, including the quality and timeliness of the delivery of materials supplied for use in the project and the technical skills of subcontractors hired for the project. If we are unable to find qualified suppliers or hire qualified subcontractors, our ability to meet our contractual obligations could be impaired. In addition, if the amount we are required to pay for supplies, equipment or subcontractors exceeds what we have estimated, we may suffer losses under our contract. If a supplier or a subcontractor fails to provide supplies, equipment, or services as required under a negotiated arrangement for any reason, or provides supplies, equipment or services that are not of an acceptable quality, we may be required to source those supplies, equipment or services on a delayed basis or at a higher price than anticipated, which could impact our financial performance. In addition, faulty materials or equipment could result in claims against us for failure to meet contractual specifications, and failure by suppliers or subcontractors to comply with applicable laws and regulations could negatively impact our reputation and our business and, in the case of government contracts, could result in fines, suspension or even debarment from participating in bidding processes. These risks may be intensified during economic downturns if these suppliers or subcontractors experience financial difficulties. As a result, our business and financial performance may be adversely affected by our dependence on third-party providers.
Failure to comply with, or changes in, laws or regulations could have a material adverse effect on our business and financial performance
We operate in highly regulated industries. Our business and financial performance depends on our ability and the ability of our clients, suppliers, subcontractors and partners to comply on a timely and efficient basis with extensive national, regional and municipal laws and regulations relating to, among other matters, environmental, health and safety, building and zoning, labor, tax and other matters. The cost of complying with these laws and regulations can be substantial. In addition, compliance with these laws and regulations can cause scheduling delays. Although we believe we are in compliance with applicable laws and regulations in all material respects, including our concessions or similar contractual obligations, we cannot assure you we have been or will be at all times in full compliance.
Failure by us or our clients, suppliers, subcontractors or partners to comply with these laws and regulations, or our concessions or similar contractual obligations, could result in a range of adverse consequences for our business, including subjecting us to significant fines, civil liabilities and criminal sanctions, requiring us to comply with costly restorative orders, the shutdown of operations, and revocation of permits and termination of concessions or similar contracts. In addition, we cannot assure you that future changes to existing laws and regulations, or stricter interpretation or enforcement of existing laws and regulations, will not impair our ability to comply with such laws and regulations, increase our compliance costs or impair our ability to perform our obligations with our clients, suppliers, subcontractors or partners as agreed.
We may be held liable for environmental damage caused by our operations
The nature of certain of our operations requires us to assume risks of causing environmental and other damages. We may be held liable for the environmental damage we cause, including the incidental consequences of human exposure to hazardous substances or other environmental damage. We may be subject to clean up costs or penalties in the event of certain discharges into the environment and/or environmental contamination and damage. Our environmental liability insurance may not be sufficient or may not apply to certain types of environmental damage. Any substantial liability for environmental damage could have a material adverse effect on our financial performance.
We are exposed to the risk of increasing environmental legislation and the broader impacts of climate change
With an increasing global focus and public sensitivity to environmental sustainability and environmental regulation becoming more stringent, our business could be subject to increasing environmental responsibility and liability. For example, the countries in which we operate are considering implementing, or have implemented, schemes relating to the regulation of carbon emissions. As a result, there is a risk that the consumer demand for some of the energy sources supplied by our company may gradually reduce in the long term. The nature and extent of future regulation in the various jurisdictions in which our operations are situated is uncertain but is expected to become more complex and stringent.
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It is difficult to assess the impact of any such changes on our company. These schemes may result in increased costs to our operations that may not be able to be passed onto our customers and may have an adverse impact on prospects for growth of some businesses. To the extent such regimes (such as carbon emissions schemes or other carbon emissions regulations) become applicable to our operations (and the costs of such regulations are not able to be fully passed on to consumers), our financial performance may be impacted due to costs applied to carbon emissions and increased compliance costs.
Standards are set by these laws and regulations regarding certain aspects of environmental quality and reporting, provide for penalties and other liabilities for the violation of such standards, and establish, in certain circumstances, obligations to remediate and rehabilitate current and former facilities and locations where our operations are, or were, conducted. These laws and regulations may have a detrimental impact on the financial performance of our operations through increased compliance costs or otherwise. Any breach of these obligations, or even incidents relating to the environment that do not amount to a breach, could adversely affect our results of operations and our reputation and expose us to claims for financial compensation or adverse regulatory consequences.
Climate change may increase the frequency and severity of severe weather conditions and may change existing weather patterns in ways that are difficult to anticipate, which could result in more frequent and severe disruptions to our business and the markets in which we operate. In addition, customers’ requirements for our services may vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, customers’ demand for our services could increase or decrease depending on the duration and magnitude of changing weather conditions, which could adversely affect our business, results of operations and cash flows.
Additionally, changes in temperature and precipitation patterns associated with climate change may increase the energy consumption our infrastructure or cause service disruption due to extreme temperature waves, floods or extreme weather events. In addition, these changes may cause increases in the price of electricity due to, for example, reduction in hydraulic generation as a result of recurrent droughts. Further, as a result of global commitments to tackle climate change, new carbon dioxide taxes may be imposed and could affect, directly or indirectly, the Company, and may have a negative impact on our results of operations.
Our ability to achieve our environmental, social and governance goals are subject to risks, many of which are outside of our control, and our reputation could be harmed if we fail to meet such goals
Companies across all industries are facing increasing scrutiny from stakeholders related to environmental, social and governance (“ESG”) matters, including practices and disclosures related to environmental stewardship; social responsibility; diversity, equity and inclusion; and workplace rights. Our ability to achieve our ESG goals and objectives and to accurately and transparently report our progress presents numerous operational, financial, legal and other risks. If we are unable to meet our ESG goals or evolving stakeholder expectations and industry standards, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, our reputation, and therefore our ability to conduct business in each of the countries we operate, could be negatively impacted.
In addition, in recent years, investor advocacy groups and certain institutional investors have placed increasing importance on ESG matters. If, as a result of their assessment of our ESG practices, certain investors are unsatisfied with our actions or progress, they may reconsider their investment in our company.
We may not be able to effectively protect ourselves against financial market risks
Our operations are exposed to financial market risks, such as risks related to exchange rates, commodity prices and interest rates. Fluctuations in currency, commodity prices or interest rates could adversely affect our financial performance. We cannot assure you that derivative financial instruments, if any, will protect us from the adverse effects of financial market risks. While hedging transactions are intended to reduce market risks, such transactions may expose us to other risks, such as counterparty risk. We may not be able to adequately protect ourselves against financial market risks and may not ultimately achieve an economic benefit from our hedging strategy.
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The loss of a key client in some of our lines of business may affect our business and financial performance
In some of our lines of business, such as our Infrastructure segment or our Colombian and Peruvian operations, a substantial amount of the revenue we receive is concentrated among a limited number of clients, including the Peruvian government. If one or more of these major clients fail or delay in paying our fees, or if there is a significant reduction or cancellation of business by one or more of these major clients, our business and financial performance may be adversely affected. If we are not able to capture new clients to replace the loss of business from existing key clients, our financial performance may be adversely affected.
Labor unrest could adversely affect our financial performance
All of our manual laborers and a portion of our employees are members of labor unions. Our practice is generally to extend benefits we offer our unionized employees to non-unionized employees. In our E&C segment, collective bargaining agreements are negotiated at two levels, on an annual basis between the Peruvian National Federation of Civil Construction and the Peruvian Chamber of Construction, without our direct involvement, and on a per project basis directly between the unions and us in accordance with such annual agreement. The Peruvian judiciary has previously determined that employers are not entitled to extend union benefits to non-unionized employees. Allowing this could discourage employees from joining a union, as they could still enjoy the benefits agreed upon in the collective agreements entered by that union.
We also have collective agreements with our employees in certain of our reportable segments, which are also negotiated periodically. Although we consider that our relationship with unions is currently positive, we cannot assure you that we will not experience work slowdowns, work stoppages, strikes or other labor disputes in the future, situations that could result in the interruption or delay of our operations. Such interruptions or delays could have an adverse impact on our business, including on the cost of our projects and our ability to make timely delivery. Moreover, our operations may also be affected by labor unrest in the workforces of our clients, suppliers, sub-contractors or partners.
The proceeds from our insurance policies may not be sufficient and we may not be insured against all risks
We maintain insurance coverage both as a corporate risk management strategy and in order to satisfy the requirements under certain regulations and contracts. We cannot assure you that proceeds from our insurance policies, however, will be sufficient to cover the damages resulting from any event covered by such policies. Certain risks are not covered under the terms of our insurance policies, such as interruption of operations. In such event, we may incur significant expenses to rebuild our facilities, repair or replace our equipment, or cover other damages. In addition, if any of our third-party insurers fail, abruptly cancel our coverage, or otherwise cannot satisfy their insurance requirements to us, then our overall risk exposure and operational expenses could be increased. Moreover, we may not be able to renew our insurance policies on favorable terms, or at all. Although in the past we have been generally able to cover our insurance needs, we cannot assure you that we will be able to secure all necessary insurance in the future.
An increase in import duties and controls, supply shocks, or other restrictions on our obtaining instruments and equipment, may have a material adverse effect on our financial performance
Our future success depends in part on our ability to select and purchase high quality mechanical instruments and equipment at attractive prices. While we have historically been able to do so, such instruments and equipment may become subject to higher import taxes than currently apply. We cannot assure you that there will not be further increases in import taxes, changes in laws related to imports or the imposition of quotas by countries from which we import mechanical instruments and equipment, any of which could have a material adverse effect on our business.
We cannot assure you that any such approvals will be granted in a timely manner or at all, and such restrictions may limit our ability to purchase necessary instruments and equipment.
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Debarment from participating in government bidding processes in AENZA, Cumbra Peru, and UNNA Transporte could have an adverse impact on our business and financial performance
As a result of the judicial approval of the plea agreement against our company, AENZA, UNNA Transporte, and Cumbra Peru, will temporarily face debarment from participating in government bidding processes or entering into new contracts with the Peruvian government for two years after the judicial approval of the agreement. We cannot assure you that other subsidiaries will not face similar debarment sanctions in the future.
In 2021, 2022 and 2023, 1.0%, 0.1%, and 0.1% of our E&C revenues, respectively, came from public-sector contracts in Peru. As of December 31, 2023, 1% of our backlog is comprised of contracts with the public sector in Peru. As a result, if we are debarred from participating in government bidding processes, our business and financial performance could be affected. To extent that economic conditions reduce private sector investments, being debarred from contracting with the Peruvian or other governments could further impact our company.
We may not be able to successfully expand outside of Peru
One of our long-term strategies has been to continue to expand our operations outside of Peru, particularly in Chile, Colombia, and Brazil. We cannot assure you that we will be able to replicate our success in Peru in other countries. Our international expansion is subject to additional challenges, including: our ability to assimilate cultural differences and practices; our limited familiarity with local laws, regulators and contractors; our ability to attract and manage foreign personnel; the absence of a local workforce formed in our corporate values and familiar with our operations; competition in foreign markets, including from industry players with significantly greater local experience and reputation; and other risks specific to these countries.
Many countries in Latin America have suffered significant economic, political, and social crises in the past, and these events may occur again in the future. If we are unable to overcome these challenges, we may not be able to successfully expand internationally.
We may not be able to make successful acquisitions
In the past, part of our long-term strategy was to evaluate strategic acquisition opportunities to expand our operations and geographic footprint, especially in Chile, Colombia, and Brazil. It is our strategy to grow through organic and inorganic growth through acquisitions. Such growth could be funded through joint ventures, sale of capital at subsidiary levels or parent level as well as through borrowings or other forms of financing. We may not be able to identify appropriate acquisition opportunities, or, if we do, we may overpay for these acquisitions or may not otherwise be able to negotiate terms and conditions that are acceptable to us. We may also face difficulties obtaining financing to pay for acquisitions.
In addition, we may not be able to obtain regulatory approvals, including antitrust approvals, required to consummate acquisitions. Furthermore, even if we are able to successfully consummate an acquisition, we may encounter challenges in integrating the acquired business effectively and profitably into our operations. The integration of an acquisition involves a number of factors that may affect our operations, including diversion of management’s attention, difficulties in retaining personnel and entry into unfamiliar markets. Acquired businesses may not achieve the levels of productivity anticipated or otherwise perform as expected. Acquisitions may bring us into businesses we have not previously conducted and expose us to additional business risks that are different from those we have traditionally experienced, including new geographic, market, operating and financial risks. Moreover, acquisitions involve special risks, including the potential assumption of unanticipated liabilities and contingencies. Even if such liabilities are assumed by the sellers, we may have difficulties enforcing our rights, contractual or otherwise. We cannot assure you that future acquisitions will meet our strategic objectives.
Our IT security measures may be breached or compromised and we may sustain system outages
Security breaches, whether intentional or unintentional, may threaten the confidentiality, integrity or availability of our information resources and may allow unauthorized access to our systems, disrupt our digital operations, corrupt data, or allow persons to misappropriate confidential data. Any breach of our network security measures could cause interruptions in our services or operations, damage our reputation and harm our ability to operate our business. This may result in client or supplier dissatisfaction and a loss of business. Our security measures may be inadequate to prevent security breaches, and we may be required to expend significant capital and other resources to protect against the threat of security breaches and to alleviate problems caused by breaches as well as by any unplanned unavailability of our IT systems caused by other reasons, which may adversely affect our business and financial performance.
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Additional Risks Related to our Infrastructure Business
Our return on our investment in our concessions may not meet estimated returns
Our return on any investment in a concession is based on the terms and conditions of the concession, its duration and the amount of capital invested as well as the amount of revenues collected, debt service costs, payment of penalties and other factors. For example, traffic volume at toll roads may be affected by factors beyond our control, including security conditions; general economic conditions; demographic changes; fuel prices; reduction in commercial or industrial activities in the regions served by the roads; changes in laws regarding toll payments; and natural disasters. Although some of our concessions allow for adjustments based on economic conditions, certain concessions provide that adjustment requests be approved only if certain limited events specified in our concession contracts have occurred. If a request of adjustment is not granted, our financial performance could be affected. Given these factors and the possibility that governmental authorities could implement policies that affect our contractual return on investment in a way that we did not anticipate, we cannot assure you that our return on any investment under any concession will meet our estimates.
Governmental entities may prematurely terminate our concessions and similar contracts under various circumstances, some of which are beyond our control
Our ability to continue operating our concessions and similar public-sector contracts depends on governmental authorities, which may terminate the concession or contract pursuant to the provisions set forth therein or in accordance with applicable legislation, including the failure to comply with any contractual terms (including the concessionaire’s default on debt) or applicable law, including after giving effect to changes in laws. Moreover, the relevant governmental authority may terminate and/or repossess a concession at any time, if, in accordance with applicable law, the governmental authority determines that it is in the public interest to do so. The relevant governmental authority may also assume the operation of a concession in certain emergency situations, such as war, public disturbance, or threat to national security. In addition, in the case of force majeure, the relevant governmental authority may require us to implement certain changes to our operations. If the government terminates any of our concessions, under Peruvian law, it is generally required to compensate us for the amount of our unrecovered investment, unless the concession is revoked pursuant to applicable law or the terms of the concession which would imply a serious breach of the concession’s terms by us. Such compensation process is likely to be time consuming and the amount paid to us may not fully compensate us. We cannot assure you that we would receive such compensation on a timely basis or in an amount equivalent to the value of our investment in a concession plus lost profit.
We are exposed to risks related to the operation and maintenance of our concessions and similar contracts
The operation and maintenance requirements under our concessions could encounter delays or cause us to exceed our budgeted costs for such projects, which could limit our ability to realize the expected return on these projects, increase our operating or capital expenses and adversely affect our business and financial performance. In addition, our operations may be adversely affected by interruptions or failures in the technology and infrastructure systems that we use to support our operations, including toll road collection and traffic measurement systems. The Lima Metro in particular may be susceptible to outages due to power loss, telecommunications failures and similar events. The failure of any of our technology systems may cause disruptions in our operations, adversely affecting our profitability. While we have business continuity plans in place to reduce the adverse impact of information technology system failures on our operations, we cannot assure you that these plans will be effective. Furthermore, accidents and natural disasters may also disrupt the construction, operation or maintenance of our projects and concessions, which could adversely affect our business and financial performance.
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We may not be successful in obtaining new concessions
The market for infrastructure concessions in the Latin America region is competitive. We compete with Peruvian and foreign companies for infrastructure concessions, some of whom may have greater financial and other resources or expertise pertinent to a specific concession. Additionally, our public-sector clients may face budget deficits that may prohibit the development of infrastructure concessions, which could affect our business. We may also not be able to obtain additional concessions if the government decides not to award new concessions, due to budget constraints or policy changes or because alternative financing mechanisms are used. Recently, the awarding of concessions and the use of public-private associations in Peru have stalled, due in part to concerns related to the corruption scandal surrounding Odebrecht and its potential effect on government officials in the country. In addition, AENZA, Cumbra Peru, and UNNA Transporte are temporarily unable to bid for or participate in new public procurement contracts due to the Final Agreement on Settlement and Cooperation Agreement that we executed with Peruvian prosecutorial authorities. Our inability to bid for or obtain new concessions may adversely affect our business and financial performance.
Additional Risks Related to our Energy Business
A substantial or sustained decline in oil prices would adversely affect our financial performance
The revenue of our energy business depends upon prevailing prices for oil. Historically, oil prices and markets have been volatile and are likely to continue to be volatile in the future. Moreover, global oil prices have fluctuated significantly in recent years, with the average Brent crude prices increasing to US$66.00 per barrel in 2019. The price of oil dropped precipitously due in part to the COVID-19 pandemic as well as to disputes between OPEC members, to US$18.83 as of April 30, 2020. The price of oil recovered slowly during 2020 and early 2021, reaching US$48.96 as of December 31, 2020, and US$72.42 as of December 31, 2021. On March 31, 2022, the price of oil reached US$104.64 per barrel. As of December 31, 2021, 2022 and 2023, the price of oil per barrel was US$72.39, US$77.02, and US$77.40, respectively.
Oil is a commodity, and its price is subject to wide fluctuations in response to relatively minor changes in supply and demand for oil, market uncertainty, and a variety of additional factors beyond our control. Those factors include, among others: global demand and supply; political developments in producing regions; weather conditions; governmental regulations; international conflicts and acts of terrorism; the price and availability of alternative sources of energy; and overall local and global economic conditions. Moreover, lower oil prices may not only decrease our revenues on a per unit basis but may also reduce the amount of oil we can produce economically, if any, and, as such, may have a negative impact on the reserves of the fields in which we operate. As result, our financial performance could be materially and adversely affected by declines in oil prices.
Our reserves estimates depend on many assumptions that may turn out to be inaccurate and are not subject to review by independent reserve auditors
The process of estimating oil and gas reserves is complex, although the fields where we produce oil and gas are mature (Block III for 100 years, Block IV for 95 years and Block V for over 50 years). In order to prepare our reserves estimates presented in this annual report, we must project production rates and timing of development expenditures as well as analyze available geological, geophysical, production and engineering data, and the extent, quality and reliability of this data can vary. The process also requires economic assumptions about matters such as oil prices, drilling and operating expenses, capital expenditures, taxes, and availability of funds. Therefore, estimates of reserves are inherently imprecise. Moreover, our reserve estimates included in this annual report have been prepared internally by our team of engineers and have not been audited or reviewed by independent engineers. Future real production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable reserves will most likely vary from the estimates presented in this annual report, and those variances may be material. Any significant variance could materially affect the estimated reserves of the fields in which we operate.
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Our license, service and operation contracts with Perupetro and Petroperu have expiration dates
We operate and extract oil and natural gas from Blocks III and IV under 30-year license agreements with Perupetro, which expire in April 2045. Our operations in Block I and Block V expired in December 2021 and October 2023, respectively. The concession of Terminales del Peru for the operation of the north and central fuel terminals for PetroPeru have 20-year terms, providing storage. We cannot assure you that we will maintain these operations after the expiration of the contracts, on similar terms or at all, or that we will be able to cease the operation of such assets on favorable terms for the Company.
We may not be able to finance our mandatory capital expenditure requirements in connection with our oil and gas operations and storage and distribution business
We operate and extract oil from Blocks III and IV under two license agreements with Perupetro. Pursuant to the license agreements, we have assumed mandatory investment commitments of 514 wells on both blocks. If we are not able to fulfill our mandatory capital expenditures under our license agreements, our business and financial performance could be adversely affected. See “Item 4.B. Information on the Company—Business Overview—Energy.”
Additionally, we operate five fuel terminals in the northern and central regions of Peru with mandatory capital expenditure requirements. If we are not able to fulfill our mandatory capital expenditures under our contracts or if the recognition of investments is delayed, our business performance could be adversely affected.
Additional Risks Related to our Real Estate Business
We are exposed to risks associated with the development of real estate
Our real estate business is subject to the risks that generally affect the real estate industry, such as availability and prices of suitable land, environmental and zoning regulations, interruptions in supply and volatility of the prices of construction materials and equipment, and changes in the demand for real estate. Our real estate business is specifically affected by the following risks: macroeconomic conditions in Peru that may impact the growth of the real estate sector as a whole, particularly in the residential market, including an increase in unemployment or a decrease in wage levels; an increase in prevailing interest rates or lack of available credit; changes in government subsidies for affordable housing; unfavorable real estate market conditions, such as an oversupply of residential units or scarcity of suitable land in particular areas; the level of customer interest in our new projects or the sales price per unit necessary to sell the unit may be lower than expected; customer perception of the security, convenience and attractiveness of our projects and the areas in which they are located; cost overruns, many of which may be beyond our control, that exceed our estimates and affect our profit margins, including the price of labor, land, insurance, taxes and public charges; the construction and sale of units may not be completed on schedule; bankruptcy or significant financial difficulties of large industry players, which cause a loss of confidence in the industry; limitations when contracting with government entities; and restrictions on real estate development imposed by local, regional and national authorities which may render restrictive laws and regulations. To a lesser extent, the real estate business has also been negatively impacted by modifications by the government to a program (Bono de Buen Pagador) that encourages social interest housing sales and access to credit. Any of the above events may have a material adverse effect on our business and financial performance.
Real estate prices may decline
Real estate prices in Peru have generally risen over the last decade, supported by a higher demand for housing and an increase in the cost of construction materials. Although real estate prices are expected to continue to rise in the coming years due to a shortage of housing, they are not expected to grow at the same rate as in the past, and we cannot assure you that they will rise at all. In particular, real estate prices in Peru may decline due to political conflict, a rise in interest rates and lack of subsidies from the government. If real estate prices decline significantly, our business and financial performance could be materially and adversely affected.
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Our business may be adversely affected if we are not able to obtain the necessary licenses and/or authorizations for our developments on a timely basis
Real estate development requires obtaining certain licenses, authorizations and registrations. In Peru, municipal authorities are responsible for issuing most of the licenses that are required during the development stage, including zoning, demolition, construction and conformity (conformidad de obra) licenses, among others. As of December 31, 2023, we had seven real estate projects in various stages of development. For some of these projects, we have not yet initiated administrative proceedings with the appropriate authorities, or such proceedings are pending approval. A denial or an extended delay in issuing licenses, authorizations or registrations, or an extended delay by municipal authorities in approving licensing procedures, may render land unsuitable for development, delay the completion of planned projects, increase our costs or otherwise negatively impact the pricing of projects and adversely affect our business and financial performance.
We may experience difficulties in finding desirable land and increases in the price of land may increase our cost of sales and decrease our earnings
The continued growth of our real estate business depends in large part on our ability to continue to acquire land at a reasonable cost, free of liens and encumbrances and in locations suitable for development. As more developers enter or expand their operations in the Peruvian real estate sector, land prices could rise significantly and suitable land could become scarce or overpriced due to increased demand or decreased supply. A resulting rise in land prices may increase our cost of sales and decrease our earnings. We may not be able to acquire suitable land at reasonable prices in the future, which may have a negative impact on our financial performance.
Changing market conditions may adversely affect our ability to sell home inventories in our land and at expected prices
There is a lag between the time we acquire land and the time that we can bring the developed properties to market. Lag time varies by sector and on a project-by-project basis. As a result, we face the risk that demand for real estate may decline related to interest rates, prices, among other factors or that other developments may occur during this period that affect market conditions, and that we will not be able to dispose of developed properties or undeveloped land at expected prices or profit margins or within anticipated time frames or at all. Significant expenditures associated with investments in real estate, such as maintenance costs, architectural fees in high-end projects, construction costs and debt payments, cannot generally be reduced if changes in market conditions cause a decrease in expected revenues from our properties. Moreover, the market value of home inventories and undeveloped land can fluctuate significantly because of changing market conditions. As a result of these and other factors beyond our control, we may be forced to sell properties or land at a loss or for prices that generate lower profit margins than we anticipate.
Additionally, the Peruvian government has adopted the Nuevo Crédito MiVivienda and Techo Propio programs, among others, which promote access to affordable housing in Peru by providing government subsidies to individuals for the purchase of homes. If these subsidies are reduced or eliminated, we may not be able to sell our expected home inventories at expected prices and our revenues and backlogs could be affected.
The current political situation in Peru, and the economic uncertainty that may result, could adversely affect the ability or willingness of prospective buyers to purchase real estate properties. The scarcity of financing, an increase in interest rates or an increase in the security required by financial institutions as collateral may adversely affect the ability or willingness of prospective buyers to purchase our real estate properties. In most cases, the purchasers of our residential or commercial properties finance at least part of the purchase price with mortgage loans. On the other hand, in 2022 and 2023, 92% and 98.7% respectively, of our residential units were sold to purchasers who received government subsidies to finance the purchase of homes. An increase in interest rates, whether as a result of market conditions or government action, may cause a decrease in the demand for our residential and commercial properties and for land development. An increase in interest rates could also increase our own financing costs, which may, in turn, increase the sale price of our projects and adversely affect our business and financial performance.
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Determinations by INDECOPI may adversely affect our ability to enforce binding contracts
In resolving consumer protection complaints in the real estate sector, INDECOPI has made determinations against real estate developers resulting in the modification of contractual provisions applicable to purchasers. Some purchasers of real estate properties have taken advantage of these INDECOPI determinations and filed complaints against developers before INDECOPI and/or made public claims through the media seeking to obtain compensation for alleged deficiencies in housing construction as well as the modification of the terms of their contracts, which may have a negative impact on our real estate business. Although we have a small number of such complaints in INDECOPI, an increase in consumer complaints and consumer protective measures, particularly those resulting in the modification of contractual terms, may affect our ability to enforce our contracts under their original terms if we are not able to counter such claims, which in turn may have a negative impact on our real estate business.
Additional Risks Related to our Engineering and Construction Business
We are vulnerable to the cyclical nature of the end-markets we serve
Demand for our engineering and construction services is dependent on conditions in the end-markets we serve, which include, among others, the mining, power, oil and gas, transportation, real estate and other infrastructure sectors in Peru, as well as the mining sector in Chile and the energy sector in Colombia. Consequently, our engineering and construction business is closely linked to the performance and growth of these sectors, and it is exposed to many of the risks faced by our clients operating in these sectors, over which we have no control. These industries tend to be cyclical in nature and, as a result, although downturns can impact our entire company, our engineering and construction business has historically been subject to periods of very high and low demand.
Factors that can affect these sectors include, among others, macroeconomic conditions, climate conditions, the level of private and public investment, the availability of credit, changes in laws and regulations, and political and social stability. Mining and oil and gas sectors, in particular, are also driven by worldwide demand for the underlying commodities, including, among others, silver, gold, copper, oil and gas, which can be affected by such other factors as global economic conditions and geopolitical affairs.
A decline in prices for minerals, oil and gas has had in the past, and could have in the future, a significant impact on our clients’ exploration and production activities and, as a result, on their demand for our engineering and construction services. Adverse developments in the end-markets served by our engineering and construction business could have a material adverse effect on our financial performance.
Decreases in capital investments by our clients may adversely affect the demand for our services
Our engineering and construction business is directly affected by changes in private-sector and, to a lesser extent, public-sector investments for large-scale infrastructure projects. In addition, our engineering and construction business is directly affected by the availability and cost of financings for these projects. In the markets where we operate, investments and financings for large-scale projects have historically been influenced by macroeconomic and other factors which are beyond our control, including in the case of public-sector investment or government spending levels. As a result, we cannot assure you that clients will not choose to limit or not undertake new projects or delay, suspend or cancel existing projects.
In 2023, Peru experienced a decrease of 5.6% in the growth rate of 1.0% in private and public investments compared to an increase in the growth rate of 1.0% in 2022. Reductions in anticipated capital investments or available financing for large-scale projects could have a material adverse effect on our financial performance.
Our revenues may fluctuate based on project cycles, which we may not control
The substantial majority of the revenues from our engineering and construction business is generated from project awards, the timing of which may be unpredictable and outside of our control, especially considering the highly competitive bidding processes and complex and lengthy negotiations they involve. These processes can be impacted by a wide variety of outside factors including governmental approvals, financing contingencies and overall market and economic conditions. Moreover, because a significant portion of our revenues is generated from largescale projects, our results of operations can fluctuate quarterly or yearly depending on whether and when project awards occur and the commencement and progress of work under awarded contracts. As a result, we are subject to the risk that revenues may not be derived from awarded projects as quickly as anticipated.
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Our business may be adversely affected if we incorrectly estimate the costs of our projects
We conduct our engineering and construction business under various types of contractual arrangements where costs are estimated in advance. In some of our contracts (i.e., lump-sum, unit price and EPC), we bear the risk of some or all unanticipated cost overruns, including those due to inflation or certain unforeseen events. Risks under contracts which could result in cost overruns include: difficulties in performance of our subcontractors, suppliers, or other third parties; changes in laws and regulations or difficulties in obtaining permits or other approvals; unanticipated technical problems; unforeseen increases in the cost of inputs, components, equipment, labor, or the inability to obtain these on a timely basis; delays caused by weather conditions; incorrect assumptions related to productivity or scheduling estimates; and project modifications that create unanticipated costs or delays. These risks tend to be exacerbated for longer term contracts since there is increased risk that the circumstances under which we based our original bid could change. In many of our contracts, we may not be able to obtain compensation for additional work performed or expenses incurred. Our failure to estimate accurately the resources and time required to complete a project could adversely affect our profitability. Even under our cost-plus contracts, our inability to complete projects within the estimated budget could affect our relationship with our clients and negatively impact awards of future contracts. As a result, if we incorrectly estimate the costs of our projects, our business and financial performance could be adversely affected.
We may be unable to deliver our services in a timely manner
The success of our engineering and construction business depends on our ability to meet the standards and schedules required by our clients. Significant delays that prevent us from providing our services on agreed time frames could adversely affect our client relations and reputation. Delays may occur for a number of reasons, including our inability to adequately foresee the needs of our clients, delays caused by our joint operation partners, subcontractors or suppliers, insufficient production capacity, equipment failure, shortage of qualified workers, changes to applicable regulations, and natural disasters. Failure to finish construction by the contractual completion date set forth in the contract could result in costs that reduce our projected profit margins, including a requirement to pay daily penalties and damages. If we are unable to meet deadlines, either due to internal problems or as a result of events over which we have no control, we may lose the trust of our clients and, therefore, experience a decrease in the demand for our services. In such event, our business and financial performance could be adversely affected.
Equipment that we need, including spare parts and components required for project development, may become unavailable or difficult to procure, inhibiting our ability to maintain full availability of existing facilities and also our ability to complete development projects on scope, schedule and budget
Equipment and spare parts may become unavailable or difficult to procure on terms consistent with those that we have budgeted for. For example, some jurisdictions in which we operate have experienced supply chain challenges resulting from bottlenecks caused by, among other things, increases in demand and challenges involved with ramping up to meet this demand.
While supply chain disruptions that occurred globally in 2021 did not materially impact our business or operations, supply chains could be further disrupted in the future by factors outside of our control. This could include (1) a reduction in the supply or availability of the commodities required to produce the parts and components that we need to maintain existing projects and develop new projects from our development pipeline, (2) the potential physical effects of climate change, such as increased frequency and severity of storms, precipitation, floods and other climatic events and their impact on transportation networks and manufacturing centers, and (3) economic sanctions or embargoes, including those relating to human rights concerns in jurisdictions that produce key materials, components or parts.
Any material delays in procuring equipment or significant cost increases could adversely impact our business and financial condition.
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We may not be able to obtain compensation for additional work or expenses incurred as a result of client-requested change orders
Clients often determine, after commencement of the project, to change various elements of the project. Some of our contracts may also require that clients provide us with design or engineering information or with equipment or materials or land rights to be used on the project. In some cases, the client may provide us with deficient design or engineering information or equipment or materials or may provide the information or equipment or materials or land rights to us later than required by the project schedule.
Our project contracts generally require the client to compensate us for additional work or expenses incurred due to client requested change orders or failure of the client to provide us with specified design or engineering information or equipment or materials or land. Under these circumstances, we generally negotiate with the client with respect to the amount of additional time required to make these changes and the compensation to be paid to us.
We are subject to the risk that we are unable to obtain, through negotiation, arbitration, litigation or otherwise, adequate amounts to compensate us for the additional work or expenses incurred by us due to client-requested change orders or failure by the client to timely provide required items. A failure to obtain adequate compensation for these matters could require us to record an adjustment to amounts of revenue and gross profit that were recognized in prior periods. Any such adjustments, if substantial, could have a material adverse effect on our financial performance.
We may have difficulty obtaining performance bonds that we require in the normal course of our operations
In our engineering and construction business, it is industry practice for customers to require performance bonds or other forms of credit support to secure, among other things, bids, advance payments and performance. We cannot assure you that in the future we will not encounter difficulties in obtaining such performance bonds or credit support. The Peruvian market for these types of credit instruments is small; moreover, under Peruvian banking regulations, lenders are required to impose limits on the amount of credit they extend to a group of affiliated companies. Failure to provide performance bonds or credit support on terms required by clients may result in our inability to compete for or win new projects.
Moreover, under certain contracts, we may be obligated to maintain performance bonds during the course of litigation, significantly increasing the costs incurred as a result of a dispute. This also may expose us to the risk that a client may enforce the performance bond without regard to the merits of its claim which, in turn, may debilitate our negotiating position with the client and consequently impair our ability to favorably resolve the dispute. The enforcement of a performance bond by any of our clients may affect our ability to obtain new performance bonds for new projects.
Our use of the percentage-of-completion method of accounting for our Engineering and Construction segment could result in a reduction of previously recorded profits
Revenue from (E&C) contracts is recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance; the Company’s performance creates or improves an asset that the customer controls as the asset is created or improved; and the Company’s performance does not create an asset with an alternative use to which the Company fulfills its obligations, as there is a continuing transfer of control of the deliverable to the customer in accordance with the terms of those contracts. For these reasons, the Company accounts for revenue over time by measuring progress toward complete satisfaction of its performance obligations under each contract.
The Company uses the output method to measure the physical percentage of completion based on performance analysis of projects performed by the Company’s experts. We believe that this method represents the transfer of control of goods or services to clients on a periodic basis of project performance which provides an accurate representation of the transfer of services to the client, as it reflects an enforceable right of payment by the Company for work performed to date.
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The Company assesses whether changes in rights and obligations in a contract modification are enforceable when one or more of the following conditions are met: a) the contract, applicable law or other evidence provides a legal basis for the modification; b) the additional costs were caused by unforeseen circumstances at the date of execution of the contract and not as a result of deficiencies incurred by the Company’s performance; c) the costs related to the modification are identifiable and considered reasonable in light of the work performed; or d) the evidence supporting the modification is objective and verifiable. When one or more of the above conditions are met, the Company considers the changes in rights and obligations in the contract modification to be enforceable.
The nature of some contracts, such as cost plus fee contracts, unit price contracts or similar contracts give rise to variable consideration that may include reimbursable costs, incentives and penalties. The Company estimates the change in the transaction price resulting from variable consideration when the transaction price has not yet been approved by the customer, in accordance with the requirements of IFRS 15 Revenue from Contracts with Customers. To include variable consideration related to a contract modification in the estimated transaction price, the Company must conclude that it is “highly probable” that a significant revenue reversal will not occur. The Company determines the likelihood of revenue reversal occurring (and, therefore, whether such price will be recovered) based on an analysis of whether any of the following factors are present: i) contractual entitlement; ii) past practice with the customer; iii) specific discussions or preliminary negotiations with the customer; or iv) verbal approval by the customer. If, as a result of such analysis, the Company concludes that it is “highly probable” that there will not be a significant reversal of the amount of revenue recognized, it recognizes the variable consideration related to the contract modification. When the benefit of the contract cannot be reliably estimated, the associated revenue is recognized to the extent that the costs incurred are recoverable. Revenue is invoiced upon receipt of customer approval. When it is probable that total contract costs will exceed the related revenue, the expected loss is recognized immediately.
The Company estimates the amount of revenue to be recognized as variable consideration using judgmental judgments and estimates to determine the most probable value, based on which is expected to best predict the amount of consideration to which the Company will be entitled.
While management believes that the estimates made are reasonable and made in accordance with the above methodology, given the uncertainties associated with these types of contracts and inherent in the nature of some of the industries in which we operate, it is possible for actual costs to vary from estimates previously made, including due to changes in facts and circumstances, which may result in reductions or reversals of previously recorded profits.
Risks Related to Peru
Economic, social and political developments in Peru could adversely affect our business and financial performance
Most of our operations are conducted in Peru and depend on economic and political developments in the country. As a result, our business may be materially and adversely affected by economic downturns, currency depreciation, inflation, interest rate fluctuation, government policies, regulation, taxation, social instability, political unrest, drug trafficking, terrorism, and other developments in or affecting the country, over which we have no control. In the past, Peru has experienced periods of severe economic recession, large currency devaluation and high inflation. We cannot assure you that Peru will not experience similar adverse economic developments in the future. In addition, Peru has experienced periods of political instability that has included a succession of regimes with differing economic policies and programs. Previous governments have imposed controls on prices, exchange rates, local and foreign investments, and international trade, restricted the ability of companies to dismiss employees, expropriated private-sector assets and prohibited the remittance of profits to foreign investors. We cannot assure you that the Peruvian government will continue to pursue open-market policies that stimulate economic growth and social stability and that the risk of expropriation of the concessions where we operate will not materialize.
Moreover, investigations against former or current government officials relating to bribery payments made by Odebrecht have, and may continue to, result in political uncertainty in Peru. In March 2018, President Pedro Pablo Kuczynski presented his resignation, due to allegations of corruption for vote-buying in connection with the impeachment proceeding against him, and his first vice president, Martín Vizcarra, was sworn in as acting president. In September 2019, the executive branch, invoking article 134 of the constitution, dissolved Congress and called for new legislative elections which were held in January 2020. Following these elections, the Peruvian executive and legislative branches have been at odds over several important economic and social measures, including initiatives to address the economic and social impact of the COVID-19 pandemic on Peru. In November 2020, Congress impeached and removed from power Mr. Vizcarra and appointed Manuel Merino as President, who in turn resigned five days after his appointment as was replaced by Francisco Sagasti. Criminal investigations have been initiated against former presidents Alejandro Toledo, Ollanta Humala, Alan García, Pedro Pablo Kuczynski and Martín Vizcarra. On April 17, 2019, former President Alan García committed suicide as prosecutors were preparing to detain him over matters relating to criminal investigations. Several corruption scandals regarding authorities at municipal, regional and national government levels are also ongoing, and former government officials have been detained. These corruption investigations resulted in lower investments in large projects.
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Peru’s general elections to elect the president and all congressional members for 2021-2026 were held on April 11, 2021. As a result, the candidates for president, Mr. José Pedro Castillo Terrones and Mrs. Keiko Sofia Fujimori Higuchi obtained the highest number of votes but no outright majority, giving place to a ballotage presidential run-off that was held on June 6, 2021, with Mr. Castillo resulting elected as the new President.
On December 7, 2022, Peru’s former President Pedro Castillo announced the dissolution of Congress, among other measures such as the intervention of the Prosecutor’s Office, the Judicial System, and the Constitutional Court, and was arrested. Dina Boluarte, Castillo’s first vice president, was sworn in as president the same day to serve until July 2026. Following Mr. Castillo’s impeachment, a wave of protests arose across the country, which led President Boluarte to declare a state of emergency in several regions in Perú on December 12, 2022. Amidst these protests, President Boluarte has made a series of proposals to Congress to approve early elections, however, Congress has not obtained sufficient votes to accelerate the presidential elections. During the first quarter of 2024, the Peruvian prosecutor’s office initiated preliminary investigations against President Dina Boluarte for her irregular alleged possession of a collection of Rolex watches and luxury jewelry that has put her at the center of a corruption investigation.
We cannot assure you whether the Peruvian government will continue to pursue business-friendly and open-market economic policies that stimulate economic growth and stability. Moreover, we cannot assure you that measures negatively impacting private investment, such as higher taxation or exchange controls, will not be implemented.
Uncertainty derived from the current political situation may cause clients to postpone investment decisions or may disrupt Peruvian markets which, in turn, could have a significant negative effect on our business. The political instability caused by these events could also affect macroeconomic conditions in the country, including currency volatility, as well as have a negative effect on our business.
Fluctuations in the value of Peruvian sol could adversely affect financial performance
Fluctuations in the value of the sol relative to the U.S. dollar could adversely affect Peru’s economy. In addition, fluctuations in the value of the sol to the U.S. dollar can materially adversely affect our results of operations.
In 2021, 35.2% and 46.0% of our revenues were denominated in soles and U.S. dollars, respectively, whereas 57.7% and 20.5% of our costs of sales were denominated in soles and U.S. dollars, respectively. In 2022, 34.4% and 47.1% of our revenues were denominated in soles and U.S. dollars, respectively, whereas 51.7% and 28.3% of our costs of sales were denominated in soles and U.S. dollars, respectively. In 2023, 27.0% and 54.4% of our revenues were denominated in soles and U.S. dollars, respectively, whereas 45.3% and 31.3% of our costs of sales were denominated in soles and U.S. dollars, respectively. In the past the exchange rate between the sol and the U.S. dollar has fluctuated significantly. We cannot assure you that the value of sol against other currencies will not fluctuate significantly in the future, which could adversely affect the Peruvian economy and our business, financial condition, and results of operations.
In addition, although Peruvian law currently imposes no restrictions on the ability to convert soles to foreign currency, in the past, Peru imposed exchange controls, including controls affecting the remittance of dividends to foreign investors. We cannot assure you that exchange controls in Peru will not be implemented in the future. The imposition of exchange controls could have an adverse effect on the economy.
Inflation could adversely affect our financial performance
In the past, Peru has suffered through periods of hyperinflation, which have materially undermined the Peruvian economy and the government’s ability to create conditions that support economic growth. A return to a high inflation environment would also undermine Peru’s foreign competitiveness, with negative effects on the level of economic activity and employment.
As a result of reforms initiated in the 1990s, Peruvian inflation decreased significantly from four-digit inflation during the 1980s. The Peruvian economy experienced annual inflation of 2.0% in 2020, as measured by the Peruvian Consumer Price Index (Indice de Precios al Consumidor del Peru). Nonetheless, in 2021, 2022 and 2023, the inflation rate rose to 6.4%, 8.5% and 3.2%, respectively. In 2022, inflation was at a 30-year peak, due mostly to global supply chain issues and the recovery of global demand in relation to the COVID-19 pandemic.
If Peru experiences substantial inflation in the future, our costs of sales and administrative expenses could increase which could affect our operating margins. Inflationary pressures may lead to governmental intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Peruvian economy. For example, in response to increased inflation, the Peruvian Central Bank, which sets the Peruvian basic interest rate, may increase, or decrease the basic interest rate in an attempt to control inflation or foster economic growth.
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Geopolitical conflicts could affect Latin American economies and our businesses
We are subject to geopolitical risks, including Russia’s military invasion of Ukraine, as well as the Israel-Hamas conflict. Those geopolitical conflicts are affecting international energy prices and global inflation, which may affect aggregate demand and economic growth expectations. Global oil prices reached pre-COVID-19 levels by the end of 2020, increased in 2021 due to supply shocks and the resurgence of demand, and rose sharply in early 2022 due to the conflict between Ukraine and Russia. Since 2023 through the date of this annual report oil prices have remained relatively stable. The effects of those conflicts and other geopolitical situations could adversely affect the economies of the countries in which we operate our businesses, especially with regards to investments and our ability to refinance our debt.
We cannot assure you that oil prices will decrease in the future (although increased oil prices would benefit revenues in our Energy segment). Substantial increases in the prices of this commodity generally, as a result of geopolitical conflicts or otherwise, result in increases in our suppliers’ operating costs and, consequently, lead to increases in the prices they charge for their products. See “—Increases in the prices of energy, raw materials, equipment or wages could increase our operating costs.”
Changes in tax laws may increase our tax burden and, as a result, negatively affect our financial performance
The Peruvian Congress and government regularly implement changes to tax laws that may increase our tax burden. These changes may include modifications in our tax rates and, on occasions, the enactment of temporary taxes that in some cases have become permanent taxes. The effects of any tax reforms that could be proposed in the future and any other changes that result from the enactment of additional reforms have not been, and cannot be, quantified. However, any changes to our tax regime may result in increases in our overall costs and/or our overall compliance costs, which could negatively affect our financial performance.
Earthquakes, severe weather, and other natural disasters could adversely affect our business and financial performance
Peru is located in an area that experiences seismic activity and occasionally is affected by earthquakes. For example, in 2007, an earthquake with a magnitude of 7.9 on the Richter scale struck the central coast of Peru, severally damaging the region south of Lima. Such conditions may result in physical damage to our properties and equipment, closure of one or more of our project sites and infrastructure concessions, inadequate work forces in our markets and temporary disruptions in the supply of construction materials. In addition, Peru has also experienced adverse climate conditions (due to climate change or otherwise) and adverse weather patterns, such as El Niño phenomenon, an oceanic and atmospheric phenomenon that causes a warming of temperatures in the Pacific Ocean, resulting in heavy rains off the coast of Peru and potentially flooding in certain areas of Peru, on the one hand, and simultaneous droughts in the southern Andean region of the country, on the other hand.
In the beginning of 2023, Peru has experienced intense rainfall and weather conditions resulting in overflow risk, mudslides and floods. In addition, the National Service of Meteorology and Hydrology of Peru (Servicio Nacional de Meteorología e Hidrología del Perú) and the National Study of the El Niño phenomenon (Estudio Nacional del Fenómeno El Niño) maintained a state of alert until April 2024, when El Niño conditions ended. Poor weather conditions can have significant adverse effects on our engineering and construction activities as well as on our operation and maintenance of infrastructure assets business. Any of these factors may materially adversely affect the Peruvian economy and our business and financial performance.
A resurgence of terrorism in Peru could adversely affect the Peruvian economy and, as a result, our business and results of operations
In the past, Peru experienced severe terrorist activity that reached its peak of violence against the government and private sector in the late 1980s and early 1990s. In the mid-1990s, terrorist groups suffered significant defeats, including the arrest of leaders, resulting in considerable limitations in their activities. Despite the suppression of terrorist activity, we cannot assure you that a resurgence of terrorism in Peru, or other organized criminal activity, including drug trafficking, will not occur, or if there is such a resurgence, it will not disrupt the economy of Peru and our business.
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The Peruvian economy could be affected by adverse economic developments in regional or global markets
Financial and securities markets in Peru are influenced, to varying degrees, by economic and market conditions in regional or global markets. Although economic conditions vary from country to country, investors’ perceptions of events occurring in one country may adversely affect cash flows and securities from issuers in other countries, including Peru. Changes in social, political, regulatory and economic conditions in large economies or in laws and policies governing foreign trade or affecting global financing conditions could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Peruvian economy, which in turn could have a negative impact on our operations. The worsening of current global conditions or a new economic or financial crisis could affect Peru’s economy and, consequently, materially adversely affect our business and financial performance.
Risks Related to Chile, Colombia and other Latin American Countries
We face risks related to our operations outside of Peru
Latin American economic, political and social conditions may adversely affect our business. In 2022, the Latin America region underwent political and governmental shifts towards anti-capitalist political agendas. In the countries where we operate (Peru, Colombia and Chile), the changes of government have generated greater uncertainty about their economic and social stability. Our financial performance may be significantly affected not only by general economic, political and social conditions in Peru but also in other markets where we operate or intend to operate, including Chile and Colombia. During 2021, 2022 and 2023, 18.9%, 19.5%, and 27.2%, respectively, of our revenues on a consolidated basis derived from operations outside of Peru. The change in the legal framework of the countries where we operate could adversely affect our business and financial performance. These countries have suffered significant economic, political and social crises in the past, and these events may occur again in the future. We cannot predict whether changes in current administrations will result in changes in governmental policy and whether such changes will affect our business. Instability in the region has been caused by many different factors, including: significant governmental influence over local economies, substantial fluctuations in economic growth, high levels of inflation, changes in currency values, exchange controls or restrictions on expatriation of earnings, high domestic interest rates, wage and price controls, changes in governmental economic or tax policies such as including retroactive changes, imposition of trade barriers such as import duties on information technology equipment, electricity rationing, liquidity of domestic capital and lending markets, unexpected changes in regulation, expropriations, and high levels of organized crime, terrorism and social conflicts as well as overall political, social and economic instability. Moreover, macroeconomic conditions in these countries are highly influenced by global commodity prices, including the price of copper for Chile and the price of oil and gas for Colombia.
In addition, beginning in October 2019, Chile has suffered from widespread social unrest and vandalism that has had a significant economic and political impact on the country. The protests began over the government’s announcement of an increase in subway fares in Santiago and quickly grew into broader unrest over economic inequality, including claims about transportation costs, funding for education, health care costs and pension amounts, among others. The Chilean government imposed a state of emergency and nighttime curfews in Santiago and other cities; however, protests and violence continued. The Chilean government took a series of social and economic measures to tackle the issues at the heart of the unrest and the Chilean congress convened a plebiscite initially to be held in March 2020, which was rescheduled to October 25, 2020 as a result of the COVID-19 pandemic, to determine whether constitutional amendments should be implemented. By democratic majority, the Chilean constituents to the plebiscite voted to amend the Chilean Constitution. A new Chilean Constitution was drafted by a constitutional convention whose members were elected in May 2021 and subsequently rejected by a national plebiscite held in September 2022. Following the plebiscite’s rejection, the Chilean congress approved a second constitutional process which was rejected in December 2023. The new constitution may contain changes that generate uncertainty and potential instability. In December 2021, Mr. Gabriel Boric Font was elected as the new President of Chile and took office in March 2022. We cannot assure you that the newly elected Chilean government will continue to pursue business-friendly and open-market economic policies that stimulate economic growth and stability.
Beginning in November 2019 and more recently in 2021, Colombia has experienced civic unrest, including a national strike and anti-government protests. Demonstrators in the country, protesting for several reasons, including opposing certain economic and political reforms proposed by the administration of President Duque, public corruption, and the implementation of the peace agreement between Colombia and the guerrilla Fuerzas Armadas Revolucionarias de Colombia (FARC). In addition, protestors have demanded reforms related to pensions, access to education, environmental protection and inequality, among others. We cannot predict the policies that will be adopted by the Colombian government and whether those policies would have a negative impact on the Colombian economy or our business and financial performance. Our Colombian operations could be adversely impacted by rapidly changing economic, political and social conditions in Colombia and by the Colombian government’s response to such conditions. On June 16, 2022, Colombia elected the left-wing candidate Gustavo Petro as President. Gustavo Petro has announced plans to increase government intervention, reduce oil production, and impose higher taxes on oil companies; measures that could adversely affect the economy and potentially impact our business and financial performance.
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Risks Related to Our Common Shares
The delisting of our ADSs from the NYSE and our intended deregistration under the Exchange Act may affect the liquidity and trading price of our common shares
On October 31, 2023, the Board of Directors approved the intention to initiate the delisting process of shares represented by ADS from the NYSE, the deregistration process of AENZA from the SEC and the termination of our ADS program. On November 27, 2023, we filed a Form 25 with respect to the delisting of our ADSs from the NYSE and our ADSs have been delisted from the NYSE effective close of trading on the NYSE on December 7, 2023. Our common shares continue to be listed on the Lima Stock Exchange. Following the delisting of the ADSs from the NYSE, we intend to file a Form 15F with the SEC to terminate its reporting obligations under Section 13(a) and 15(d) of the Exchange Act. We will continue to be subject to reporting obligations under the Securities Act until we can terminate and/or suspend our reporting obligations to the SEC under the Exchange Act.
As a consequence of the delisting becoming effective, the amended and restated deposit agreement, dated as of December 31, 2018 by and among the Company, The Bank of New York Mellon (the “Depositary”), and all owners and holders of ADSs, under which the ADSs were issued, has also been terminated effective on February 26, 2024. After the ADSs were delisted from the NYSE, there has been no over-the-counter market trading of the ADSs in the United States. As a result, investors may not have sufficient liquidity, making it more difficult for holders of the ADSs to sell their securities. In addition, the delisting and the termination of our ADS Program may result in holders of the Company’s ADSs surrendering their ADSs in exchange for the underlying common shares and selling them on the Lima Stock Exchange, or in the Depositary selling the underlying common shares on the Lima Stock Exchange and giving the proceeds of such sale to holders who did not surrender the ADSs. Such sales may affect or have affected the price of our common shares.
We have identified material weaknesses in our internal control over financial reporting related to our information technology IT systems, and if we cannot maintain effective internal controls or provide reliable financial and other information in the future, investors may lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our common shares
Our management, with the participation of the Chief Executive Officer and Vice President of Corporate Control and Financial Planning, and the oversight of the Audit Committee of our Board of Directors, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023, using the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2023, because the following material weakness was identified in our internal control over financial reporting: our information technology general controls related to our information technology (IT) systems were ineffective. Therefore, our automated process-level controls and manual controls dependent upon the accuracy and completeness of information derived from those IT systems were also ineffective because they could have been adversely impacted.
We are in the process of implementing measures to address these material weaknesses. We may not be able to remediate these identified material weaknesses. Moreover, we may in the future discover other areas of our internal controls that have material weaknesses or that need improvement, particularly with respect to businesses that we acquire.
Any failure to maintain an effective internal control over financial reporting, or implement required new or improved controls, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide us with an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our common shares, which may impact our reputation and thereby adversely affect our financial performance.
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The market price and liquidity of our common shares may fluctuate significantly, and you could lose all or part of your investment
Volatility in the market price of our common shares may prevent you from being able to sell your common shares at or above the price you paid for them. The market price and liquidity of the market for our common shares may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, among others: actual or anticipated changes in our results of operations, quarterly fluctuations, or failure to meet expectations of financial market analysts and investors; investor perceptions of our prospects or our industries; operating performance of companies comparable to us and increased competition in our industries; new laws or regulations or new interpretations of laws and regulations applicable to our business; general economic trends in Peru; catastrophic events, such as earthquakes and other natural disasters; and developments and perceptions of risks in Peru and in other countries.
Substantial sales of common shares could cause the price of our common shares to decrease
Significant shareholders hold a large number of our common shares. These securities are eligible for sale. The market price of our common shares could decline significantly if we or our significant shareholders sell securities in our company or the market perceives that we or our significant shareholders intend to do so.
We may raise additional capital in the future through the issuance of equity securities, which may result in dilution of the interests of our shareholders
We may need to raise additional capital and may opt for obtaining such capital through the public or private placement of common shares, debt securities or debt securities convertible into our common shares. In such event we may seek to obtain financing through the exclusion of the preemptive rights of our shareholders, which may dilute the percentage interests of investors in our common shares.
On November 2, 2020, the general shareholders’ meeting of the company approved a financial plan that included (i) the issuance by the company of convertible bonds in an amount up to US$90 million and (ii) the issuance of corporate bonds in an amount up to US$350 million. On August 13, 2021, AENZA issued Convertible Bonds in a total principal amount of US$89.9 million. The Convertible Bonds matured in February 2024, beared interest at a rate of 8%, and were payable quarterly. The Convertible Bonds were convertible into shares as of the sixth month from the date of issuance. In accordance with the terms and conditions of the Convertible Bonds, holders of Convertible Bonds in a principal amount equivalent to US$11 million exercised their conversion rights and on February 28, 2022 we issued 37,801,073 new common shares. Additionally, holders of Convertible Bonds in a principal amount equivalent to US$78.9 million exercised their conversion rights and, on March 31, 2022, we issued an additional 287,261,051 new common shares. After these conversions, the Convertible Bonds were fully cancelled.
Peru has different corporate disclosure and accounting standards than those you may be familiar with in the United States
Financial reporting and securities disclosure requirements in Peru differ in certain significant respects from those required in the United States. There are also material differences among IFRS, Peruvian GAAP and U.S. GAAP. Accordingly, the information about us available to you will not be the same as the information available to holders of shares issued by a U.S. company. In addition, the Peruvian Securities Market Law, which governs open or publicly listed companies, such as us, imposes disclosure requirements that are more limited than those in the U.S. in certain important respects. Although Peruvian law imposes restrictions on insider trading and price manipulation, applicable Peruvian laws are different from those in the United States, and the Peruvian securities markets are not as highly regulated and supervised as the U.S. securities markets.
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Minority shareholders in Peru are not afforded equivalent protections as minority shareholders in other jurisdictions and investors may face difficulties in commencing judicial and arbitration proceedings against our company or the controlling shareholder.
Our company is organized and existing under the laws of Peru. Accordingly, investors may face difficulties in serving process on our company, officers, and directors or significant shareholders in the United States of certain other jurisdictions, and in enforcing decisions granted by courts located in other jurisdictions against our company, our officers and directors or significant shareholders that are based on securities laws of jurisdictions other than Peru.
In Peru, there are no proceedings to file class action suits or shareholder derivative actions with respect to issues arising between minority shareholders and an issuer, its controlling shareholders or directors and officers. Furthermore, the procedural requirements to file actions by shareholders differ from those of other jurisdictions, such as in the United States. As a result, it may be more difficult for our minority shareholders to enforce their rights against us, our directors, officers or significant shareholders as compared to the shareholders of a U.S. company.
Judgments of Peruvian courts with respect to our common shares will be payable only in soles
If proceedings are brought in the courts of Peru seeking to enforce our obligations in respect of the common shares, we will not be required to discharge our obligations in a currency other than soles. Under Peruvian exchange control limitations, an obligation in Peru to pay amounts denominated in a currency other than soles may be satisfied in Peruvian currency only at the exchange rate, as determined by the Peruvian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non-Peruvian investors with full compensation for any claim arising out of or related to our obligations under the common shares.
If securities or industry analysts publish unfavorable research about our business or if they cease to follow our business, the price and trading volume of the common shares could decline
The trading market for the common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades the common shares or publishes unfavorable research about our business, the price of the common shares would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for the common shares could decrease, which could cause the price and trading volume of the common shares to decline.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
With more than ninety years of experience, AENZA, formerly known as Graña y Montero S.A.A., is a leading Peruvian diversified conglomerate with operations in the infrastructure and energy concession business, real estate and E&C sectors, with a diversified and difficult-to-replicate portfolio of best-in-class assets and an attractive growth strategy. We operate under an integrated portfolio approach with complementary and synergistic businesses. In this regard, our infrastructure business has long-term concession contracts, with low to no demand risk and resilient cash flow generation capacity. Our energy business has limited resource risk with an average hit ratio of approximately 97% for commercial oil wells with a high reserve-replacement ratio of 1.21 (between 2015 and 2023). Only five oil wells drilled were not productive over the past five years. Furthermore, our Real Estate segment is backed by robust demand and public subsidies and our E&C segment is exposed to diverse industries driven by local and external economic cycles with a sizable market opportunity.
We are an important toll road concessionaire in Peru, operating three toll roads, including Norvial, the sole highway connecting Northern and Central Peru. Moreover, we are the concessionaire for Line 1 of the Lima Metro, the largest mass-transit rail system in Peru. We also operate a wastewater treatment plant and we provide services to maintain and operate our different infrastructure assets.
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Our operations are also present in the oil and gas sector. As a leading energy concession operator in Peru, we have entered into significant long-term contracts with limited resource risk with an expiration between 20 and 30 years. Our operations include two productive oil fields and five multifaceted fuel storage facilities, all under extensive concession contracts signed with the Peruvian government, alongside ownership of a gas processing plan. Our top clients include Petroperu, ENEL, Repsol, Primax, Exxon and Marathon. Through our Energy segment, we accounted for 10.5% of the oil production and 17.7% of the fuel dispatch within Peru during 2023, according to the Ministry of Energy and Mines of Peru (“MINEM”).
Furthermore, we own Cumbra Peru, the largest construction company in Peru in terms of revenues according to Construcción Latinoamericana, with more than 90 years of operations and a long-standing track record for operational excellence. We have completed some of the most complex and large-scale infrastructure projects in Peru. We believe we are an integral part of Peru’s ongoing transformation with projects that contribute to the overall economic development of the country. In addition, our expertise, track record, scale and operational capabilities in Peru position us to take advantage of the country’s long-term favorable economic conditions and growth opportunities. We are also a niche leader in the real estate sector, focusing primarily on the affordable housing market.
With a permanent presence in Peru, Chile and Colombia, we are strategically located in Latin American countries with among the highest sustained growth rates in the region. We are well-positioned to capitalize on the significant infrastructure deficit and other business opportunities in Latin America.
The history of the company dates back to 1933, and the company has been listed on the Lima Stock Exchange since 1997 and, until December 7, 2023, on the NYSE:
| ● | The company traces its origins to its original predecessor, GRAMONVEL, which was founded more than 90 years ago. |
| ● | We expanded our operations internationally in 1943 with our contract to build a Nestle factory in Venezuela. |
| ● | In 1948, we began one of our largest projects since our founding—the construction of the city of Talara for the International Petroleum Company, which was completed in 1957. | |
| ● | In 1949, GRAMONVEL merged with Morris y Montero to form Graña y Montero Contratistas Generales S.A. (now Cumbra Peru, our engineering and construction subsidiary), expanding its service offerings and increasing its capacity to undertake large-scale infrastructure projects. |
| ● | In 1983, we began a diversification strategy by developing complementary lines of business. In 1984, we founded UNNA Energía, our oil and gas subsidiary. In 1985, we partnered with Sonda S.A. (a Chilean IT services company) to form GMD S.A. (“GMD”), our IT services subsidiary. Beginning in 1987, we founded our real estate development business, which currently operates under Viva, which was incorporated in 2008. |
| ● | In 1996, we reorganized our subsidiaries and founded Graña y Montero S.A.A., which became the principal shareholder of all our subsidiaries. In 1997, we listed our company on the Lima Stock Exchange. |
| ● | In 1998, our company built Larcomar, a landmark shopping center in Lima that has become a popular tourist destination, which we sold in 2010. |
| ● | In 2003, 2006 and 2007, we were awarded the concessions for the construction, operation and maintenance of the Norvial, Canchaque and Survial toll roads, respectively. |
| ● | In 2007, we also developed the first large-scale affordable housing project in Lima, consisting of 3,400 apartment units and located in the district of El Agustino. |
| ● | In 2012, we began operating the Lima Metro. |
| ● | In July 2013, we listed our company on the NYSE. |
| ● | In 2012 and 2013, we acquired 74.0% and 6.4%, respectively, of Ingeniería y Construcción Vial y Vives S.A. (“Vial y Vives”), an engineering and construction company specializing in the Chilean mining sector. In August 2013, we acquired 86.0% of DSD Construcciones y Montajes S.A. (“DSD Construcciones y Montajes”), a Chilean engineering and construction company specialized in providing services to the energy, oil and gas, cellulose and mining sectors in Chile and Latin America. In July 2014, our subsidiary Vial y Vives merged with DSD Construcciones y Montajes to form Vial y Vives-DSD S.A. (“Vial y Vives-DSD”), through our subsidiary GyM Chile SpA, we hold an 86.2% interest in Vial y Vives-DSD. As of the date of this annual report, we hold a 94.5% interest in Vial y Vives-DSD. |
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| ● | In December 2014, our subsidiary Cumbra Peru acquired 70% of the share capital of Morelco, a Colombian engineering and construction company specialized in the oil and gas and other energy sectors. As of December 2022, we own 100% of Morelco. |
| ● | In April 2015, UNNA Energía started operations of its hydrocarbon extraction services in Blocks III and IV for Perupetro, in the provinces of Talara and Paita in northern Peru. |
| ● | In 2020, Lima Airport Partners awarded our company, as a member of the Inti Punku Consortium, with a contract for the construction of the second runway of the Jorge Chávez International Airport. |
| ● | In November 2020, the annual shareholders’ meeting of the company approved the change of the company’s name from Graña y Montero S.A.A. to AENZA, and, effective November 12, 2020, our common shares and ADSs became tradeable on the Lima Stock Exchange and the NYSE, under the ticker symbols “AENZ” and “AENZAC1", respectively. We have also re-named certain of our subsidiaries. |
| ● | In May 2021, the company entered into a collaboration and benefits agreement (Acuerdo Preparatorio de Colaboración Eficaz y Beneficios) with Peruvian prosecutorial authorities, setting the amount of S/333.3 million plus US$40.7 million for civil reparations. On September 15, 2022, we entered into the Final Agreement on Settlement and Cooperation with Peruvian prosecutorial authorities which was approved by the Peruvian courts on August 11, 2023. |
| ● | In August 2021, IG4 Capital successfully concluded its public tender over the Company’s shares and ADSs, becoming a significant shareholder of the company. A new, diverse Board of Directors was elected, and a new CEO, with 25 years of experience in infrastructure and capital-intensive industries, has been appointed. The newly appointed board and CEO are undertaking a turnaround process of the company. |
| ● | In September 2021, Cumbra Peru, as a member of the Inti Punku consortium, was awarded with a contract for the construction for the expansion of Lima’s airport passenger terminal. This is the second mayor project that we have with our client Lima Airport Partners. |
| ● | On November 27, 2023, we filed a Form 25 with respect to the delisting of our ADSs from the NYSE. The delisting became effective on December 7, 2023, and the termination of our ADS program was effective on February 26, 2024. |
Following the delisting of the ADSs from the NYSE, AENZA intends to file a Form 15F with the SEC to terminate its reporting obligations under Section 13(a) and 15(d) of the Exchange Act. In the opinion of Management and the Board of Directors, this decision is expected to generate efficiencies for the Company, considering the low liquidity of the ADSs and the high annual costs of NYSE listing and SEC registration, and will not affect the Company’s long-term plans. AENZA’s shares continue to be listed on the Lima Stock Exchange.
AENZA’s journey reflects an unwavering commitment to innovation and excellence, supported by a strategic vision that has guided our expansion and diversification over the years. As we look to the future, we recognize that our continued success depends not only on maintaining our competitive edge in our operational sectors but also on strong governance and leadership that embody our values of ethics, transparency, and sustainability.
Our Board of Directors is fully committed with the highest standards of ethics and transparency. The diversity of its members, including Peruvian, Chilean, Brazilian and Spanish citizens, is a sign of the Company’s strategic interest in international growth. Likewise, our management, led by our CEO Andre Mastrobuono and our corporate vice president Dennis Fernandez, brings experience from across South America that is highly relevant to the development of our business, including the transformation and turnaround of companies undergoing restructuring processes. This management team has implemented a new corporate structure organized by processes, focusing on risk management and synergy generation within the framework of a culture of accountability. We safeguard the health and safety of our workforce and all the persons participating in our operations and services.
AENZA is a publicly-held corporation (sociedad anónima abierta) organized under the laws of Peru. Our principal executive office is located at Avenida Petit Thuars 4957, Miraflores, Lima, Peru, and our main telephone number is +511-213-03000. Our website address is www.aenza.com.pe. Information contained on, or accessible through, our website is not incorporated in this annual report, and you should not consider any such information part of this annual report. The U.S. Securities and Exchange Commission (the “SEC”) maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
For information on our organizational structure, see “Item 4.C. Information on the Company–Organizational Structure.”
For information on our capital expenditures and divestitures, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures.”
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B. Business Overview
Overview
We have a diversified portfolio of business units that includes a leading infrastructure management and development platform in Peru, one of the top oil and gas companies in Peru, a leading position in the affordable housing market in Peru, and the largest engineering and construction company in Peru with permanent presence in Colombia and Chile.
The tables below show our revenues, profit (loss), Adjusted EBITDA, and backlog for the year from 2021 to 2023.
During 2023, we generated revenues of S/4,301.5 million (US$1,158.5 million), profit of the year of S/141.1 million (US$38.0 million), Adjusted EBITDA of S/729.8 million (US$196.6 million), and backlog of S/ 4,278.3 million (US$1,152.2 million).
| For the year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | 2021 | |||||||||||||
| (in millions of US$) | (in millions of soles) | |||||||||||||||
| Profit (loss) of the year | 38.0 | 141.1 | (362.1 | ) | (101.8 | ) | ||||||||||
| Financial expenses | 51.2 | 190.0 | 156.5 | 262.6 | ||||||||||||
| Financial income | (8.4 | ) | (31.3 | ) | (15.5 | ) | (5.8 | ) | ||||||||
| Interests for present value of financial asset or liability | (0.7 | ) | (2.6 | ) | 86.0 | - | ||||||||||
| Income tax | 52.7 | 195.6 | 131.3 | 46.4 | ||||||||||||
| Depreciation and amortization | 63.8 | 236.9 | 177.0 | 192.7 | ||||||||||||
| Adjusted EBITDA(2) | 196.6 | 729.8 | 173.3 | 394.1 | ||||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization, Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (In each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. |
Our Strengths
We believe our company’s strengths provide us with significant competitive advantages. Our principal strengths include the following:
Integrated Portfolio Approach with Four Business Units with Unique and Complementary Risk, Return and Growth Profiles
Aenza has a completely integrated and diversified portfolio of companies. Our Infrastructure companies have long-term concession contracts or fully owned assets under monopolistic or semi-monopolistic businesses giving anchor cash flows and predictable returns with low risk. Infrastructure and Energy represent almost 68% of the EBITDA. The E&C business has a diversified portfolio of companies with a regional footprint, offering synergistic support to the infrastructure and concessions businesses. Additionally, our Real estate business offers low execution risk with a clear and actionable pipeline of projects to reduce the housing gap in the country.
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Leading Concessions Platform Built Upon a Diversified Portfolio of Assets with Long-Term, Low-Risk and Predictable Cash Flows
We have built a diversified portfolio of fully owned concessions that bring predictable cash flows to the company. Our main concessions include Linea 1, which is the only railway transport in Peru which transports almost 550 thousand passengers. Linea 1 revenues are not subject to demand risk but instead are based on the number of train kilometers traveled. This concession represents 56% of the Company’s profit for 2023 and over 16% of 2023 Adjusted EBITDA and the concession has 17 years left.
Our toll road concessions include Norvial, a heavily transited 182-kilometer highway with 3 toll stations. Norvial is critical for Peruvian trade and export flow and the inauguration of the Chancay port is expected to result in increased traffic for this asset as well. With US$66 million in Adjusted EBITDA, Norvial and Linea 1 represent the bulk of the concessions income.
We have an upstream oil and gas operation through the production of blocks three and four located in the northern region of Peru. The operation of both blocks has 21 years of remaining concession term and has over 514 fully operational wells on a consolidated basis. We produced over 4,000 barrels per day in 2023, equivalent to almost 11% of total national production. This concession has shown cash flow resilience even in low oil price scenarios and has the potential for exploiting proven underdeveloped reserves until 2045.
We operate five fuel storage and distribution terminals strategically located on the Northern and Central coasts of Peru where we offer reception, storage, and distribution services for refined liquid hydrocarbons such as diesel, gasoline, and aviation fuels, among others. The concession revenues are not directly related to oil prices and 10 years remain left in the concession’s terms.
Leading E&C Business with Unparalleled Experience in Complex and Large-Scale Projects
Our backlog amounted to S/ 4,278.3 million (US$1,152.2 million) as of December 31, 2023. We believe that our backlog, which as of December 31, 2023, represented 1.8x of our consolidated 2023 revenues, provides visibility as to our potential for growth in the coming years, although backlog may not always be an accurate indicator of future revenues. Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit. Moreover, we believe our backlog is strategically targeted to our key end-markets such as mining, infrastructure, power, energy, and real estate. As of December 31, 2023 31.2% of our backlog across our operating segments was comprised of contracts with the private sector and 59.8% of our backlog across our operating segments is comprised of concession contracts. Furthermore, we continuously evaluate bidding on contracts arising from the significant ongoing private and public investments in Latin America.
Synergistic Business Model to Drive Growth Through the Development and Execution of New Market Opportunities and Operational Excellence
We are a leader in the infrastructure sector in Peru, with a diversified and difficult-to-replicate portfolio of best-in-class assets and an attractive growth strategy. Our concession platform currently operates (i) the concessionaire for the Lima Metro (the largest mass-transit rail system in operation in Peru, transporting more than half a million individuals every day); (ii) Norvial (the most important highway connecting central and northern Peru; (iii) two additional toll roads; and (iv) a wastewater treatment plant. We also have over two decades of experience in the maintenance and operation of infrastructure projects, currently overseeing 1,258.1 kilometers of roads and highways across Peru with over two decades of expertise doing so.
On the energy side, we are one of the largest oil and gas producers and operators in Peru with long-term contracts with limited resource risk (approximately 97% hit ratio for commercial oil wells) and a high reserve-replacement ratio of 1.21 (between 2015 and 2023). We operate three producing oil fields and five multiple fuel storage facilities under long-term government contracts, and we also own a gas processing plant. Through our Energy segment, we accounted for 10.5% of the oil production and 17.7% of the fuel dispatch within Peru during 2023, according to MINEM.
We are also the largest construction company in Peru in terms of revenues according to Construcción Latinoamericana, with more than 90 years of operations and a long-standing track record for operational excellence. We have completed some of the most complex and large-scale infrastructure projects in the country, and we believe we are an integral part of Peru’s ongoing transformation with projects that contribute to the overall economic development of the country. We believe our expertise, track record, scale and operational capabilities in Peru position us to take advantage of the country’s long-term favorable economic conditions and growth opportunities. We are also a niche leader in the real estate sector, according to Fondo Mi Vivienda disbursement report, focusing primarily on the affordable housing market.
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We operate under an integrated portfolio approach with complementary and synergic businesses. Our portfolio approach allows us to leverage our extensive E&C capabilities to develop new infrastructure projects that we operate under long-term agreements, while capturing sizable engineering, procurement, and construction (“EPC”) profits upfront. The Line 1 of the Lima Metro concession allows us to generate S/71 million (US$ 19 million) and S/509 million (US$ 137 million) revenues for Consorcio Red Vial 5 and Consorcio Huacho Pativial in the construction and design during first stage (2012-2015) and second stage (2014 to 2019), respectively. The Norvial concession allows us to generate S/163 million (US$ 44 million) and S/330 million (US$ 89 million) revenues for Consorcio Red Vial 5 and Consorcio Huacho Pativial in the construction and design during first stage (2003-2008) and second stage (2014 to 2019), respectively. Additionally, the Line 1 of the Lima Metro concession allows us to generate S/876 million (US$ 236 million) revenues for UNNA Transporte in operation and maintenance between 2015 and 2023. The Norvial concession allows us to generate S/238 million (US$ 64 million) revenues for UNNA Transporte in operation and maintenance from 2008 to 2023.
Also, each of our reportable segments have distinct and complementary risk, return, and growth characteristics. The Infrastructure segment has long-term, low-risk, and predictable cash flows; the Energy segment has sizable medium-term growth with limited resource risk and high reserve-replacement ratio; the Real Estate segment has stable business backed by robust demand and public subsidies; and the E&C business has exposure to diverse segments driven by local and external economic cycles.
Best-In-Class Off-takers and a Client Portfolio resulting in Limited Counterparty Risk
With presence in Peru, Chile, and Colombia, we are strategically located in Latin American countries known for their business-friendly policies, with relative macroeconomic stability. We are well-positioned to capitalize upon the significant infrastructure deficit and other business opportunities in Latin America.
In addition, we work with some of the most reputable and creditworthy clients across our different business segments, including of the largest global companies.
Under the infrastructure segment, some concessions revenues are backed by the Peruvian government, with an international rating of BBB which includes quarterly payments to the concessionaire within the yearly budget. The energy business cash flow generation is backed by Petroperu, a quasi-sovereign entity. Other clients include main hydrocarbon companies such as Repsol, also an investment-grade company.
Highly Visible and Resilient Profitability and a Cash Flow Generation Profile with Strong Momentum
Our concession assets have proven to be consistent, generating positive and stable results over the years. For instance, Lima Metro’s revenues do not depend on demand but consist of a quarterly fee that we receive from the Ministry of Transport and Communications based on the kilometers traveled per train and adjusted for inflation. This concession still has 17 years left and generated dividends of S/47.7 million (US$12.8 million) in 2023, a profit for the year of S/78.6 million (US$21.2 million), and an Adjusted EBITDA of S/114.6 million (US$30.9 million) in 2023, reflecting 56% of profit for the year and 16% of the Adjusted EBITDA of the Company.
| For the year ended December 31, | ||||||||||||||||
| Adjusted EBITDA and Adjusted EBITDA Margin attributable to Linea 1 | 2023(1) | 2023 | 2022 | 2021 | ||||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||||||
| Profit (loss) of the year | 21.2 | 78.6 | 69.3 | 42.1 | ||||||||||||
| Financial expenses | 1.8 | 6.6 | 6.8 | 8.3 | ||||||||||||
| Financial income | (2.0 | ) | (7.5 | ) | (2.4 | ) | (0.5 | ) | ||||||||
| Interests for present value of financial asset or liability | 0.1 | 0.4 | - | - | ||||||||||||
| Income tax | 9.7 | 36.0 | 31.8 | 19.4 | ||||||||||||
| Depreciation and amortization | 0.1 | 0.4 | 0.3 | 0.6 | ||||||||||||
| Adjusted EBITDA | 30.9 | 114.6 | 105.7 | 69.8 | ||||||||||||
| Revenue | 111.3 | 413.2 | 388.8 | 348.9 | ||||||||||||
| Adjusted EBITDA Margin | 28.0 | % | 28.0 | % | 27.0 | % | 20.0 | % | ||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
Moreover, under our Norvial concession, we operate and maintain part of the only major highway that connects Lima to the north of Peru. Norvial’s revenues have proven to be stable as the toll rate is adjusted in accordance with a contractual formula that considers the sol/U.S. dollar exchange rate and Peruvian and U.S. inflation. Furthermore, traffic is resilient as the road is highly transited both by heavy vehicles, primarily for goods transportation, and by passenger vehicles. Additionally, Norvial charges toll fees in both directions, unlike other toll roads in Peru.
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Robust Pipeline of Highly Accretive and Low-Implementation Risk Projects to Further Extend Infrastructure Asset Lives and Bring Additional E&C Opportunities
Our assets have a robust pipeline of of highly accretive and low-implementation risk projects that will allow us to further extend infrastructure asset lives and bring additional E&C opportunities. With regards to Linea 1, the construction of a new metro line in Lima requires an increased demand for infrastructure, including investments for the reduction of transport time and an increase in capacity by 50%. As for Norvial, the new port of Chancay requires an upgrade of the current infrastructure of Norvial’s network. We are currently working and negotiating with the Peruvian Government to implement an investment plan in exchange for an extension of the concession. Additionally, in Unna Energia we plan to increase the number of wells drilled per year from 56 to 75 for maximizing the proven underdeveloped reserves in Block III and IV until 2045.
Commitment to Implementing Market-Leading ESG Policies Across our Business Units
We have implemented an environmental and social management system across all our business units, in compliance with the best international standards and international certifications. The housing projects we work with receive green bonds from the Peruvian Government and we have received an ESG loan from IDB for US$20 million. Additionally, we have almost doubled our S&P Corporate Sustainability Assessment score from 23 in 2021 to 44 in 2023 and were included in the S&P/BVL Peru General ESG Index for three consecutive years which demonstrates our robust commitment to ESG.
Strategic Shift Towards a More Predictable Revenue Model
AENZA has undertaken during recent years to move from an engineering and construction-focused company to a concession platform. In May 2022, AENZA’s board of directors approved the change in the strategic plan for the Company. The objective was to leave behind a structure with autonomous subsidiaries without a defined central strategy to become a more stable, cash-generating company that maximizies synergies between its different business units. Aenza has already made significant progress to overcome the past by implementing a new governance structure and finalizing the the class action and plea bargain agreement with Peruvian authorities that has already been judicially recognized. AENZA has also been working to recover the confidence of investors in the capital markets by having two capital increases for US$112.5 million, borrowing US$120 million under the Bridge Loan with lenders that are first tier international banks and obtaining new letters of credit granted by leading industry players.
Our Strategies
Our overall strategy is to strengthen our business segments and capitalize on the reduction of the infrastructure gap across Latin America with governments seeking to heavily to invest in the sector over the following years to decrease this gap.
Considering the high entry barriers that the infrastructure business entails, AENZA’s plan is to leverage upon its leadership position as an infrastructure company and expand our business through potential organic and/or inorganic growth opportunities while preserving a solid and robust capital structure. Part of the use of proceeds from the bond will be used to fund growth capex in our existing business segments.
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In addition, as part of our strategy, we also plan to enhance our other business segments. We will seek to obtain financing to acquire additional landbank, reducing the Peruvian housing deficit (around 1.9 million homes in Lima Metropolitana). We will seek to grow our Engineering and Construction business by consolidating its position in Chile and Colombia and continue to strengthen its focus in Peru by participating in the country’s main projects in the sectors in which we operate, while focusing on a specific set of projects in which we have a competitive advantage. We will seek to grow our Energy business, by continuing to deliver refined hydrocarbons from the terminals that we operate, and we will seek to advance production from Blocks III and IV and our gas plant in Talara.
For the next year, our strategy is to focus on the following initiatives:
| ● | enhancing our compliance best practices, including the continued strengthening of a strong compliance structure, policies, procedures and training in line with the U.S. Foreign Corrupt Practices Act and other applicable anti-corruption and anti-money laundering rules and regulations, supported by the redesign and implementation of new committee structures; |
| ● | strengthening the Company’s corporate governance structure with best practices, including an evaluation of the Board of Directors’ performance to identify opportunities for improvement. This initiative underscores our commitment to transparency and continuous improvement, ensuring that our governance practices adhere to the highest international standards; |
| ● | execution of our corporate reorganization proposal, involving the creation of two holding companies, one of which will be a regional infrastructure development platform. At the same time, we will continue to seek opportunities to complement our portfolio and strengthen our market position, aiming to become a leading player in concession management in the region; and |
| ● | continue the ongoing discussions with the Peruvian Government regarding new projects associated with Línea 1 and Norvial. |
Infrastructure
Our Infrastructure segment is composed of: (i) Line 1 of the Lima Metro, (ii) Norvial (operator of the Red Vial 5 highway concession) (together representing 34% of our Adjusted EBITDA and 95% of our Infrastructure segment), (iii) Survial (highway concession), (iv) Canchaque (highway concession), (v) La Chira Waste Water Plant and (vi) Unna Transportes (O&M contractor for our infrastructure assets).
The table below sets forth selected financial information for our Infrastructure reportable segment. This segment includes Norvial, Survial, Canchaque, UNNA Transporte, Line 1 of the Lima Metro, La Chira and Via Expresa Sur.
| As of and for the year ended December 31, | ||||||||||||||||
| 2021 | 2022 | 2023 | 2023 | |||||||||||||
| (in millions of S/, except as indicated) | (in millions of US$)(1) | |||||||||||||||
| Revenues | 867.9 | 1,007.7 | 1,015.0 | 273.4 | ||||||||||||
| Profit for the year | 69.8 | 144.2 | 123.2 | 33.2 | ||||||||||||
| Profit attributable to non-controlling interest | 21.5 | 31.5 | 33.6 | 9.1 | ||||||||||||
| Net profit margin | 8.0 | % | 14.3 | % | 12.1 | % | 12.1 | % | ||||||||
| Infrastructure Adjusted EBITDA | 194.7 | 288.9 | 259.2 | 69.8 | ||||||||||||
| Infrastructure Adjusted EBITDA Margin | 22.4 | % | 28.7 | % | 25.3 | % | 25.3 | |||||||||
| Backlog (in millions of S/)(2) | 1,782.1 | 2,009.1 | 1,990.1 | 536.0 | ||||||||||||
| Backlog/revenues ratio(2) | 2.1 | x | 2.0 | x | 2.0 | x | 2.0 | x | ||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | For more information on our backlog, see “—Backlog.” Does not include our Norvial toll road concession. Backlog is calculated as of the last day of the applicable year. Revenues are calculated for such year and converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year. |
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| For the year ended December 31, | ||||||||||||||||
| Adjusted EBITDA in the Infrastructure Segment | 2023(1) | 2023 | 2022 | 2021 | ||||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||||||
| Profit (loss) of the year | 33.2 | 123.1 | 144.2 | 69.8 | ||||||||||||
| Financial expenses | 8.5 | 31.4 | 35.6 | 36.2 | ||||||||||||
| Financial income | (4.2 | ) | (15.6 | ) | (4.8 | ) | (1.9 | ) | ||||||||
| Interests for present value of financial asset or liability | 0.6 | 2.1 | 0.3 | - | ||||||||||||
| Income tax | 15.2 | 56.6 | 52.2 | 69.8 | ||||||||||||
| Depreciation and amortization | 16.6 | 61.6 | 61.5 | 60.7 | ||||||||||||
| Adjusted EBITDA(2) | 69.8 | 259.2 | 288.9 | 194.7 | ||||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (In each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. |
Our strategy for our Infrastructure segment is to maintain our current stable and resilient projects and leverage upon our leadership position as an infrastructure company in Peru, in order to expand our business into nearby countries such as Chile, Colombia and Brazil. We will look to grow both organically and inorganically, via expansion of our existing concessions and the acquisition of existing assets across the region, to continue being a leading concession development platform in the region. Considering the significant infrastructure deficit in Latin America, the high entry barriers that the infrastructure business entails, our acquired know-how, and the synergy between the concessions and our in-house operating and maintenance company (including providing construction services to other subsidiaries, negotiating energy contracts with suppliers, and UNNA Transporte providing services to other concessions), we are well-positioned to take advantage of opportunities and expand our current geographical footprint. The following table shows selected information about our current concessions and long-term contracts as of December 31, 2023.
| Project | Year Granted |
Initiated Operations |
Expiration | Characteristics | % Owned by Us |
Status | |||||||||||||
| Toll Roads: | |||||||||||||||||||
| Norvial(1) | 2003 | 2003 | 2028 | 183 km | 67.0 | % | Operating | ||||||||||||
| Survial | 2007 | 2008 | 2032 | 758 km | 99.9 | % | Operating | ||||||||||||
| Canchaque | 2006 | 2010 | 2025 | 77 km | 99.9 | % | Operating | ||||||||||||
| Mass Transit: | |||||||||||||||||||
| Lima Metro | 2011 | 2012 | 2041 | 33.1 km | 75.0 | % | Operating | ||||||||||||
| Water Treatment: | |||||||||||||||||||
| La Chira | 2010 | 2016 | 2037 | Avg. treatment capacity of 6.3 m3/sec (expected) | 50.0 | % | Operating | ||||||||||||
| (1) | In June 2018, the company transferred economic rights over 48.8% of the share capital of Norvial to Inversiones en Autopistas S.A. by transferring its Class B shares. Our company continues to hold 67% of voting rights of Norvial and an economic interest of 18.2% of Norvial’s share capital. JJC Contratistas Generales S.A. owns 16.80% and Inversiones en Infraestructura Peru SAC owns 16.20%. |
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Line 1 of the Lima Metro
In 2011, we were awarded a 30-year concession for the operation of Line 1 of the Lima Metro, Peru’s only urban railway system as of 2023. The concession was awarded to our subsidiary Línea 1, in which we hold a 75% ownership interest, with the other 25% being held by Ferrovías Participaciones S.A. Our obligations under the contract include: (i) the operation and maintenance of the five trains provided by the government; (ii) the acquisition of 19 new trains on behalf of the Peruvian government, which will be the legal owner of such trains; (iii) the operation and maintenance of the 19 new trains (24 trains in the aggregate); and (iv) the design and construction of the railway maintenance and repair yard, which was built by our E&C segment. The construction of the second stretch of Line 1 was completed in July 2014, and started operations on July 25, 2014.
We entered into the fourth addendum to the Lima Metro concession contract on July 11, 2016, in order to expand the transportation capacity of Line 1. In accordance with the fourth addendum, the expansion project involves: (i) the purchase of 20 new trains with five-car from Alstom; (ii) the purchase of 39 new cars from Alstom, to be coupled with the 19 existing Alstom trains and the 20 new Alstom trains, resulting in a consolidated fleet of 39 Alstom trains with a six-car configuration; and (iii) the expansion and improvement of the existing infrastructure, including revamping and improvement of five stations, improvements in the electrical systems, a new access route to the maintenance workshop and new switches on the main track. The construction of the expansion of the infrastructure was carried out by our E&C segment (which highlights our highly synergistic business between our E&C and Infrastructure segments) and completed by the end of 2018, with the additional trains and rail cars delivered by the end of 2019.
As compensation for the investments on the expansion project, we are entitled to receive from the Ministry of Transportation and Communication an advance payment equal to the 30% of each investment component, as well as the balance of 70% of each investment component, which is expected to be compensated through an annual payment for complementary investments (pago anual por inversiones complementarias). The latter represents the unconditional and irrevocable right to receive a series of 56 quarterly payments from the Ministry of Transportation and Communication. In 2016, we received the advance payment of the trains and cars and, in the third quarter of 2017, we received the advance payment corresponding to the infrastructure expansion.
Our revenue from this concession consists of a quarterly fee that we receive from the Ministry of Transport and Communications based on the kilometers traveled per train and adjusted for inflation, with the fee per kilometer, the number of trains required to be in operation and the number of kilometers that we are required to travel established by the terms of the concession. Our revenues do not depend on passenger traffic volume.
As of December 31, 2023, we operated 44 trains (including four backup trains), which we expect to enable us to travel 4,811,779.65 guaranteed kilometers per year. In addition to the guaranteed kilometers stated in the contract, Line 1 traveled 478, 190 and 136 additional thousand kilometers in 2021, 2022 and 2023 respectively. The average frequency of the trains is 3 to 10 minutes, depending on the schedule and the price per kilometer traveled is, for our original 24 trains, S/96.84, and for our 20 newer trains, S/63.25.
Pursuant to the concession, we must comply with certain requirements in the operation of the trains. According to the concession, at least 95% of our trains must be running and available for use and not less than 85% of our trains that are available for use must arrive to destination on scheduled time.
The performance of the kilometers traveled has remained relatively stable over the past five years with no new addition to our rolling stock. However, the number of passengers has increased significantly over the past three years, reaching levels close to 2019.
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The below graphic show Línea 1’s kilometers traveled, number of passengers and amount of rolling stock for 2018 through 2023.
Source: Company Information
Toll Roads: Norvial, Survial, and Canchaque
Peru’s economic development is underpinned by a strong government commitment to infrastructure investment, with a particular focus on improving the country’s road system through the award of new concessions to the private sector. We believe this commitment offers significant opportunities to our Infrastructure segment. The following map shows the location of the Norvial road in Peru.
Our Infrastructure segment currently has three toll road concessions through our subsidiaries Norvial, Survial and Canchaque. All three toll roads are currently in operation, and we have the authorizations, permits and licenses necessary to fulfill our obligations under each concession, including releases of rights of way. All of our toll road concessions have utilized the construction services of our E&C segment, and the roads are currently operated and maintained by our subsidiary UNNA Transporte.
Norvial
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Under our Norvial concession, we operate and maintain part of the only major highway that connects Lima to the northwest of Peru. This 182.5-km road, known as Red Vial 5, runs from the cities of Ancón to Pativilca and has three toll stations. The concession was awarded to Norvial in 2003 for a 25-year term. In June 2018, the Company transferred economic rights over 48.8% of the share capital of Norvial to Inversiones en Autopistas S.A. by transferring its Class B shares. Our company continues to possess 67% of voting rights of Norvial and an economic interest of 18.2% of Norvial’s share capital. JJC Contratistas Generales S.A. owns 16.8% and Inversiones en Infraestructura Peru S.A.C. owns 16.2%.
Norvial’s revenue derives from the collection of tolls. For the Norvial toll road, the toll rate is set out in the Norvial concession agreement and adjusted in accordance with a contractual formula that considers the sol/U.S. dollar exchange rate and Peruvian and U.S. inflation. We are required to transfer 5.5% of our monthly toll revenue to the Peruvian Ministry of Transport and Communications and pay a 1% regulatory fee to the Peruvian Supervisory Agency for Investment in Public Transportation Infrastructure.
Our obligations under the concession include expanding the already existing road by, among other things, adding two additional lanes. The first stage of construction was completed in 2008 (with an estimated investment of US$44 million), and the second stage commenced in the second quarter of 2014 and was completed by the end of 2019 (with an estimated investment of US$89 million). Furthermore, we have invested more than US$60 million since 2008 for the operation and maintenance of this concession.
Unlike other toll roads in Peru, Norvial charges toll fees in both directions. Our road is highly transited both by heavy vehicles, primarily for the purpose of transporting goods, and also by passenger vehicles, which typically use the road to access tourist destinations. In June 2018, we signed an investment agreement with BCI Peru to monetize future dividends of Norvial. The amount of the transaction was US$42.3 million, the proceeds of which were applied to the reduction of indebtedness. In May 2020, the Peruvian Congress suspended the payment of tolls on roads during the initial period of COVID-19 quarantine. Nonetheless, the Peruvian Constitutional Court struck down the statute effective June 30, 2020, and in January 2024, we collected compensation for tolls which were suspended during that period.
Through Norvial we hold the concession contract for 25 years (2003 through 2028) with demand risk (traffic) in the self-finance modality. Norvial is responsible for the operations and maintenance of the road infrastructure of Ancón-Huacho-Pativilca highway. The performance of our traffic through the concession, specifically the heavy vehicles traffic, has increased significantly, even above pre COVID-19 pandemic levels. This increase is related to GDP growth and to the end of COVID-related restrictions. In addition, the clear indexation mechanism allows us to maintain a stable growth.
The below graphic shows Norvial’s average tariff prices in U.S. dollars, heavy vehicles traffic and light traffic vehicles for 2018 through 2023.
Source: Company Information
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Survial
Under our Survial concession, we operate and maintain a 758 km road from the San Juan de Marcona port to Urcos, Peru, which is connected to an interoceanic road that runs up to the Peruvian-Brazilian border. The road has five toll stations and three weigh stations. The concession was awarded to Survial in 2007 for a 25-year term. We own 99.9% of Survial. The following map shows the location of the road in Peru.
Our obligations under the concession include the construction of the road, which was completed in 2010.
Our revenue from this concession consists of an annual fee paid to Survial by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the road, which fee can vary depending on the amount of maintenance required due to road damages. In 2021, 2022 and 2023, the fee amounted to S/34.1 million (US$8.5 million), S/77.0 million (US$20.2 million), and S/77.1 million (US$20.8 million), respectively. Our revenue in this concession does not depend on traffic volume.
Additional revenues of the concession are generated from the execution of additional works, work we perform as a result of catastrophic events and emergency maintenance. These revenues are billed when approval is received from the grantor and/or the regulator of the work in progress.
In 2021, 2022 and 2023, the additional revenues amounted to S/1.0 million (US$0.3 million), S/0.1 million (US$0.02 million), and S/0.6 million (US$0.15 million), respectively.
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Canchaque
Under our Canchaque concession, we operate and maintain a 77 km road from the towns of Buenos Aires to Canchaque, in Peru. The road has one toll station. The concession was awarded to Canchaque in 2006 for a 15-year term. We own 99.96% of Canchaque. Our obligations under the concession include the construction of the road, which was completed in 2009. Our revenue from this concession consists of quarterly fee paid by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the road, which fee can vary depending on the amount of road maintenance required due to road wear and tear. In 2021, 2022 and 2023, the fee amounted to S/4.9 million (US$1.3 million), S/5.2 million (US$1.3 million), and S/5.4 million (US$1.5 million), respectively. Our revenue in this concession does not depend on traffic volume.
Additional revenues of the concession are generated from the execution of contractual and additional works, work we perform as a result of catastrophic events and emergency maintenance. These revenues are billed when approval is received from the grantor and/or the regulator of the work in progress.
In 2021, 2022 and 2023, the additional revenues amounted to S/14.5 million (US$3.6 million), S/0.1 million (US$0.03 million) and S/0.6 million (US$0.15 million), respectively.
La Chira
In 2010, we were awarded a 25-year concession for the design, finance, construction, operation and maintenance of La Chira wastewater treatment plant in the south of Lima. The project is aimed at addressing Lima’s environmental problems caused by sewage discharged directly into the sea. We hold a 50% share in this concession and our partner Acciona Agua holds the remaining 50%. The plant began operations in June 2016.
La Chira’s total investment in the concession was S/250 million (US$67.3 million). La Chira is entitled to collect (i) an annual payment for the investment made in the construction of the project for an amount of S/32.5 million (US$8.8 million), and (ii) and annual payment for the operation and maintenance of the project. These fees are paid by Sedapal S.A., the public utility company responsible for the supervision of the water service in Lima, for a period of 25 years. We funded our construction costs related to La Chira through the sale of government certificates to financial institutions, and, as a result, will not receive future cash flows from the annual payment owed pursuant to item (i). See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting Our Results of Operations—Infrastructure.” A joint operation in which our E&C segment participated in the construction of the wastewater treatment plant.
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Operation and Maintenance of Infrastructure Assets
We began providing our operation and maintenance of infrastructure assets services in 1994 when we were awarded the concession for the Arequipa Matarani highway in southern Peru. With this expertise, in 2003, we began providing operation and maintenance services to Norvial. In 2007, the Peruvian government initiated Proyecto Peru, a program aimed at maintaining roads not under concession to ensure their longevity. Proyecto Peru allowed us to develop new business opportunities providing maintenance services to more than 4,000 km of public roads in Peru.
We carry out our infrastructure O&M business through Unna Transporte S.A.C., which AENZA wholly owns. Our revenue in the operation and maintenance of infrastructure assets is generated either from fees we charge to Norvial, Survial, Canchaque, Chinchaypujio, and Line 1 to operate and maintain our concessions or from government payments through maintenance service contracts we have been awarded. As depicted in the chart below, we operate and maintain 1,258.1 km of Peruvian roads and highways, including our own highway concessions, in addition to Line 1.Unna Transporte is a key part of our concession assets as it: (i) provides quality and reliable support to our operations, (ii) is a highly specialized company in the operation and maintenance of our concession portfolio with a significant track record, (iii) provides highly synergistic support to our concession assets and (iv) provides unique intangible capital built-up (knowledge-drive business) that allows our operations to comply with the operational requirements established in our concession contracts.
Operation and Maintenance of Infrastructure Assets as of December 2023
Total 1,258.1 KM
The below map illustrates the roads in Peru for which we currently provide operation and maintenance services.
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| Project | Km | |
| Survial | 757.64 | |
| Canchaque | 76.9 | |
| Norvial | 182.52 | |
| Línea 1 | 33.00 | |
| Chinchaypujio | 208.08 |
We provide the following road operation and maintenance services:
| ● | Routine Maintenance. These services aim to preserve roads through ongoing maintenance, including: road demarcation; cleaning; drainage; road fissure treatment, which seals cracks in roads to prevent water infiltration; slurry sealing; and micro-paving, which seals asphalt to prevent aging and improve resistance to water and surface wear. |
| ● | Periodic Maintenance. These services entail activities that are performed periodically, intended to prevent the occurrence or exacerbation of defects, conserve the structural integrity of roads and correct major defects. |
| ● | Emergency maintenance. This maintenance work is performed whenever the need arises, such as when natural disasters damage road surfaces. |
We also administer toll stations and weighing stations; offer road patrolling services; operate assistance call centers; and provide emergency medical services.
The operation and maintenance services we provide to the Lima Metro aim to preserve the mass transit system through ongoing maintenance, including cleaning of the trains and stations and providing train operators, among other services.
Additionally, our strategy for our Infrastructure segment is to maintain our current stable and resilient projects and leverage upon our leadership position as an infrastructure company in Peru, in order to expand our business, while maintaining the strengths of this segment.
Competition
Our ability to grow through successful bids for new infrastructure concessions or other long-term contracts could be affected as a result of competition. We view our competition as including both Peruvian and international infrastructure concession operators including joint operations with partners with specialized expertise in the relevant sector. Competition varies on a case-by-case basis, depending on the main purpose of the concession.
Energy
For the year ended December 31, 2023, 70% of our Energy segment revenue was derived from the oil and gas business, 11% from the gas plant business, 14% from distribution and storage, and 5% from the operation of the Pisco Camisea fuel terminal in association.
The table below sets forth selected financial information for our Energy segment.
| As of and for the year ended December 31, | ||||||||||||||||
| 2021 | 2022 | 2023 | 2023 | |||||||||||||
| (in millions of S/, except as indicated) | (in millions of US$)(1) | |||||||||||||||
| Revenues | 541.9 | 633.8 | 682.7 | 183.9 | ||||||||||||
| Profit for the year | 57.8 | 63.9 | 52.8 | 14.2 | ||||||||||||
| Profit attributable to non-controlling interest | 51.3 | (7.1 | ) | 6.6 | 1.8 | |||||||||||
| Net profit margin | 10.7 | % | 10.1 | % | 7.7 | % | 7.7 | % | ||||||||
| Energy Adjusted EBITDA | 173.7 | 184.2 | 236.3 | 63.6 | ||||||||||||
| Energy Adjusted EBITDA Margin | 32.0 | % | 29.1 | % | 34.6 | % | 34.2 | % | ||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
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Our strategy is to develop the oil reserves of Block III and IV, to consolidate our storage business, and to look for new opportunities in the natural gas business. Through our Energy segment, we accounted for 10.5% of the oil production and 17.7% of the fuel dispatch within Peru during 2023, according to the MINEM.
| For the year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | 2021 | |||||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||||||
| Profit (loss) of the year | 14.2 | 52.8 | 63.9 | 57.8 | ||||||||||||
| Financial expenses | 5.5 | 20.3 | 17.7 | 36.2 | ||||||||||||
| Financial income | (0.7 | ) | (2.6 | ) | (1.7 | ) | (1.9 | ) | ||||||||
| Interests for present value of financial asset or liability | 0.7 | 2.7 | (2.1 | ) | - | |||||||||||
| Income tax | 6.4 | 23.7 | 30.9 | 29.9 | ||||||||||||
| Depreciation and amortization | 37.5 | 139.4 | 75.5 | 60.7 | ||||||||||||
| Adjusted EBITDA(2) | 63.6 | 236.3 | 184.2 | 194.7 | ||||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (In each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. |
The following table shows selected information for our Energy business as of December 31, 2023.
| Project | Year Granted | Initiated Operations | Expiration | Characteristics | % Owned by Us | Status | ||||||||||||||
| Energy: | ||||||||||||||||||||
| Block V | 1993 | 1993 | 2023 | Avg. daily production of 84 bbl (2023) | 100.0 | % | Expired | |||||||||||||
| Block III | 2015 | 2015 | 2045 | Avg. daily production of 1,608 bbl (2023) | 100.0 | % | Operating | |||||||||||||
| Block IV | 2015 | 2015 | 2045 | Avg. daily production of 2,404 bbl (2023) | 100.0 | % | Operating | |||||||||||||
| Gas Processing | 2006 | 2006 | N/A | Avg. daily processing capacity of 28.63 millions of cf | 100.0 | % | Operating | |||||||||||||
| North and Central Fuel Terminals | 2014 | 2014 | 2034 | Aggregate storage capacity of 2,695 thousand of bbl | 50.0 | % | Operating | |||||||||||||
We have more than 40 years of experience developing and operating energy projects in Latin America and currently operate three energy businesses within our Energy segment:
| (i) | Oil and Gas: We have been operating and extracting oil from three onshore fields (Block III, Block IV and Block V, and previously operated Block I) located in the provinces of Talara and Paita in northern Peru. As described in more detail below, we have two long-term license contracts (Blocks III and IV) with Perupetro, the Peruvian entity responsible for the administration and supervision of all exploration and production contracts in Peru, which started operations in April 2015 and sell 100% of their oil production to Petroperu. In addition, we had a hydrocarbon extraction service contract with Perupetro, under which we have been operating the oil producing field Block V, which expired in October 2023. During 2023, the oil production of our three blocks was 4,098 bbl per day on average. |
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| (ii) | Natural Gas: We own and operate a natural gas processing plant located in northern Peru, which processes and fractions natural gas, sells the liquids, and delivers dry gas to a gas-fired power generation company under a long-term processing and fractionation agreement. This operation benefits approximately 10 million Peruvian households. Our main clients are Aero Gas del Norte S.A.C., Lima Gas S.A., SOLGAS S.A., GM&G Hidrocarburos S.A.C., Punto Gas S.A.C., Corporacion Primax S.A., Gases del Norte del Peru S.A.C. (GNS), Piura Gas S.A.C., Mega Gas S.A.C and Enel Generación Piura. |
| (iii) | Transport and Distribution: We are a 50% partner in Terminales del Peru, a consortium which has a contract with Petroperu to operate and maintain five fuel storage terminals until 2034.We dispatched 43.7 thousand of barrels per day in 2023. |
In addition, we are a 50% partner in Oil Tanking Andina Services S.A.C. (“OTAS”). This subsidiary operates a fuel terminal named Terminal Marino Pisco Camisea under a contract subscribed with Pluspetrol to operate an export terminal for gasoline, diesel, propane and butane. Additionally, through OTAS, we are also a 25% partner in Logística Químicos del Sur S.A. (“LQS”), which operates the Terminal de Químicos de Matarani and which dispatched 58,372 tonnes of sodium hydrosulfide for international mining companies in 2023 and 57,508 tonnes in 2022.
The pie charts below set forth the breakdown of our revenues, profit for the year, and Adjusted EBITDA from our Energy segment for 2023.
Oil and Gas Production
We have been operating and extracting oil from three onshore fields (Block III, Block IV and Block V) located in the provinces of Talara and Paita in northern Peru. We have two long-term license contracts with Perupetro, the Peruvian entity responsible for the administration and supervision of all exploration and production contracts in Peru, (Blocks III and IV) which started operations in April 2015. All of the crude oil production from these blocks is sold to Petroperu, the national oil and gas company, but we retain the possibility to sell to third parties in case Petroperu is not able to acquire our full production. In addition, we also operated Block V, an oil producing field, pursuant to a hydrocarbon extraction service contract with Perupetro, which expired in October 2023. During 2023, the oil production of our three blocks was 4,098 bbl per day on average. The hydrocarbons extracted under Block III and IV are owned by our subsidiary UNNA Energia, who sells the oil to Petroperu based on the average prices of three international crude oil prices: Fortis, Suez Blend and Oman Blend crudes.
We have contractual obligations under our licence agreements with Petroperu in Block III and Block IV. We have capital expenditure commitments under these agreements. In 2023, as a result of the Yaku cyclone that impacted northern Peru and the El Niño phenomenon, we did not reach our contractual amounts under these agreements. Pursuant to the terms of these contracts, we have force majeure rights for delayed drilling as a result of such events.
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Source: Company Information
Source: Company Information
The following table shows selected information about our fields active in 2023.
| Property | Basin | UNNA Energía’s Ownership | Expiration | Developed Acres | Undeveloped Acres | |||||||||||||
| Block III | Talara | 100 | % | 2045 | 7,700 | 39,029 | ||||||||||||
| Block IV | Talara | 100 | % | 2045 | 10,424 | 47,592 | ||||||||||||
| Block V (concession expired) | Talara | 100 | % | October 2023 | 1,880 | 20,502 | ||||||||||||
UNNA Energia pays royalties to Perupetro, calculated in accordance with a defined, pre-agreed and transparent contractual formula that accounts for price, volume, income and expenses of each block. Our activities are focused on proved reserves development and production and are conducted in mature oil fields, which have been producing oil for over 95 years in the case of Block III, over 95 years in the case of Block IV, and over 50 years in the case of Block V. We believe our activities in these fields bear limited exploration risk supported by the high hit ratio of approximately 97% for commercial oil wells. Only five oil wells drilled were not productive over the past five years.
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Block III:
We operate and extract oil and natural gas from Block III under a 30-year license agreement with Perupetro, which expires in April 2045. Average daily production during 2023 was 1,608 barrels of crude oil. We operate 137 wells using various oil extraction systems and operate a network of production batteries and pipelines to collect, measure and deliver oil in a control point close to the Talara refinery, which purchases the oil pursuant to the terms of a contract. The contract sets forth a purchase price formula based on the average price of three international crude oil prices: Fortis Blend, Suez Blend and Oman crudes, as adjusted by certain factors. The field is located between the provinces of Talara and Paita, department of Piura, in northern Peru, 43 miles from the Talara refinery. Our principal capital expenditure commitment under this agreement consists of (i) the exploitation phase (years 2-11), during which we are committed to drill23 development wells per year (230 wells); and (ii) exploitation phase 2 (years 12-26), during which we are committed to drill at least 10% of the locations of proved undeveloped reserves identified in the reserves report submitted yearly to MINEM. In 2022, we started the first drilling campaign (out of ten campaigns), which was completed in 2023, including the drilling of the remaining. For the second campaign, started in 2023, Unna Energía drilled seven out of the twenty-three wells. The total capital expenditure in 2023 for the eleven wells was of S/53.8 million (US$14.5 million). The estimated average capital expenditure per well was US$1.2 million.
Block IV:
We operate and extract oil and natural gas from Block IV under a 30-year license agreement with Perupetro, which expires in April 2045. Average daily production during 2023 was 2,404 barrels of crude oil. We operate 377 wells using various oil extraction systems and operate a network of production batteries, including two pipelines used to collect, measure and deliver oil in a control point close to the Talara refinery, which purchases the oil pursuant to the terms of a contract. The contract sets forth a purchase price formula based on the average price of three international crude oil prices: Fortis Blend, Suez Blend and Oman crudes, adjusted for costs related to hydrocarbon transportation. The field is located in the province of Talara, department of Piura, in northern Peru, 21 miles from the Talara refinery. Our principal capital expenditure commitment under this agreement consists of (i) the exploitation phase (years 2-11), during which we are committed to drill 33 development wells per year (330 wells); and (ii) exploitation phase 2 (years 12-26), during which we are committed to drill at least 10% of the locations of proved undeveloped reserves identified in the reserves report submitted yearly to the MINEM. As of December 31, 2023, we have drilled 198 development wells and two exploratory wells at a cost of S/427.4 million (US$115.1 million). The estimated average capital expenditure per well was US$0.6 million.
Block V:
We operated and extracted oil and natural gas from Block V under a 30-year hydrocarbon extraction service contract with Perupetro, which expired in October 2023. Average daily production during 2023 in this field was 165 barrels of crude oil. We operated 43 wells in this field using various oil extraction systems. The Block V field is located in the province of Los Órganos, department of Piura, Peru, close to the border with Ecuador. Block V has been producing oil since the 1950s.
The map below shows the geographic location of our oil producing blocks in northern Peru.
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For Block V, we were entitled to a variable fee paid by Perupetro, which was based on the level of production of each field and a price formula that is based on an average price of three international crude oil prices: Fortis blend, Suez blend and Oman crudes, and a discount over this price of 72% per barrel. For Block III and Block IV, we pay royalties to Perupetro based on an average price of three international crude oil prices, Fortis blend, Suez blend and Oman crudes, as well as the production and the incomes and expenses of each block. The royalties paid to Perupetro were S/ 120.7 (US$30.2) per barrel during 2021, S/ 177.7 (US$46.4) per barrel during 2022, and S/ 146.7 (US$39.5) per barrel during 2023.
During 2021, 2022, and 2023, we received an average revenue (for all blocks) of S/ 274.8 (US$68.73), S/ 356.2 (US$93.24), and S/ 303.5 (US$ 81.73) respectively, per barrel of extracted oil, which was equivalent to 91.2%, 92.1%, and 99.1% respectively, of average Brent crude oil prices in the same years. We are not committed to provide a fixed volume of oil or natural gas under our four contracts.
We produce natural gas as a byproduct of the production of crude oil (an average of 6.1 MMcf per day in Block III and 4.6 MMcf per day in Block IV during 2023). In Block IV, a certain volume of natural gas extracted is used as fuel and the excess is sent to our Pariñas plant to be processed and commercialized as liquid and dry gas. In June 2022, we started our contract with Lima Gas pursuant to which we compress and sell compressed natural gas (CNG) (average of 0.8 MMcf per day) to Lima Gas. In Block V, we reinject the natural gas produced back into the wells. In Block III, we use part of the produced gas as fuel to operate well equipment (pumping units) and we are looking for a market to sell the excess. In this regard, we signed an agreement with Gasnorp pursuant to which we started delivering natural gas in 2023. Our revenues for the sale of natural gas (liquid and dry gas) were S/23.2 million (US$6.2 million) in 2023 in our Exploration and Production unit.
Estimated Proved Reserves:
We have a significant track record of reserves replenishment, mainly explained by our high reserve-replacement ratio of 1.21 between 2015 and 2023, which allow us to have more visibility regarding our production over the duration of our concession contract.
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The following table sets forth estimated proved, probable and possible crude oil and natural gas reserves in Blocks III and IV as of December 31, 2023.
| Crude Oil (Mbbl) | Natural Gas (MMcf) | Crude Oil Equivalents (MBoe)(1) | ||||||||||
| Block III: | ||||||||||||
| Proved developed producing | 1,177.5 | 2,790.6 | 1,642.6 | |||||||||
| Proved developed non—producing | 370.7 | 865.3 | 514.9 | |||||||||
| Proved undeveloped | 6,568.2 | 14,271.9 | 8,946.9 | |||||||||
| Total proved | 8,116.4 | 17,927.7 | 11,104.4 | |||||||||
| Probable | 5,426.4 | 8,920.9 | 6,913.2 | |||||||||
| Total proved plus probable | 13,542.7 | 26,848.6 | 18,017.6 | |||||||||
| Possible | 5,181.1 | 7,645.0 | 6,455.3 | |||||||||
| Total proved plus probable plus possible | 18,723.8 | 34,493.6 | 24,472.9 | |||||||||
| Block IV: | ||||||||||||
| Proved developed producing | 5,073.1 | 1,478.3 | 5,319.5 | |||||||||
| Proved developed non—producing | 398.6 | 0.0 | 398.6 | |||||||||
| Proved undeveloped | 4,261.7 | 0.0 | 4,261.7 | |||||||||
| Total proved | 9,733.3 | 1,478.3 | 9,979.8 | |||||||||
| Probable | 4,734.1 | 0.0 | 4,734.1 | |||||||||
| Total proved plus probable | 14,467.5 | 1,478.3 | 14,713.9 | |||||||||
| Possible | 3,468.4 | 0.0 | 3,468.4 | |||||||||
| Total proved plus probable plus possible | 17,935.9 | 1,478.3 | 18,182.3 | |||||||||
| Total: | ||||||||||||
| Proved developed producing | 6,250.6 | 4,268.9 | 6,962.1 | |||||||||
| Proved developed non—producing | 769.3 | 865.3 | 913.5 | |||||||||
| Proved undeveloped | 10,829.9 | 14,271.9 | 13,208.6 | |||||||||
| Total proved | 17,849.8 | 19,406.1 | 21,084.2 | |||||||||
| Probable | 10,160.5 | 8,920.9 | 11,647.3 | |||||||||
| Total proved plus probable | 28,010.3 | 28,327.0 | 32,731.5 | |||||||||
| Possible | 8,649.5 | 7,645.0 | 9,923.7 | |||||||||
| Total proved plus probable plus possible | 36,659.8 | 35,972.0 | 42,655.1 | |||||||||
| (1) | Thousands of Barrels of oil equivalent (BOEs). |
Source: Report on Reserves and Revenue as of December 31, 2023. PRMS Case. DeGolyer and MacNaughton.
Proved reserves are those quantities of oil and natural gas which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically feasible (i) from a given date going forward, (ii) from known reservoirs, and (iii) under existing economic conditions, operating methods and government regulations. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. To achieve reasonable certainty, we employed methodologies that have proven and consistent results. The methodologies and economic data used to estimate the proved reserves in the fields include, but are not limited to, well logs, geologic maps, available down hole and production data, seismic data, and well test data.
Reserve amounts were based on the 12-month unweighted arithmetic average of the first-day-of-the-month Brent crude price for each month in the period from January to December 2023, which pursuant to our contractual agreements resulted in average oil and gas prices of US$82.8 per barrel and US$1.9 MMcf, respectively. For purposes of the reserve amount estimation, such prices were assumed to remain constant.
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Proved undeveloped reserves in the fields as of December 31, 2023, were 13,208.6 Mboe, consisting of 10,829.9 Mbbl of crude oil and 2,378.7 Mboe (14,271.9 MMcf) of natural gas. During 2023, proved undeveloped reserves decreased by 813.2 Mboe of crude oil, mainly as a result of a decrease in drilling wells.
In 2023, 1,972 Mboe of proved undeveloped reserves were converted into proved developed reserves, consisting of 1,505 Mbbl of crude oil and 467 Mboe (2,805 MMcf) of natural gas due to due to drilling campaigns in Block III and Block IV.
Capital expenditures made during 2023, for both drilling activities and workovers to convert undeveloped reserves into proved developed reserves, amounted to S/156.3 million (US$42.1 million). The principal changes in proved undeveloped reserves during 2023 were:
| ● | In Block IV, proved undeveloped crude oil reserves decreased 763 Mbbl during 2023, as a result of revision type curves and lower number of proven locations. |
| ● | In Block III, proved undeveloped crude oil reserves decreased 1,050 Mbbl during 2023 as a result of revision type curves and lower number of proven locations. |
For changes in proved developed and undeveloped reserves from December 31, 2022 to December 31, 2023, see supplementary data (unaudited) annexed to our audited annual consolidated financial statements included in this annual report.
Qualifications of Technical Persons and Internal Controls Over Reserves Estimation Process:
The reserves estimates shown in this annual report have been prepared internally by our engineers in accordance with the definitions and guidelines of the SEC. Our reserves are estimated at the property level and compiled by our engineering staff. Our engineering staff interacts with our internal staff of operations engineers and geoscience professionals and with accounting employees to obtain the necessary data for the reserves estimation process. Our reservoir engineers and geoscience professionals have worked to ensure the integrity, accuracy and timeliness of the data, methods and assumptions used in the preparation of the reserves estimates. Mr. Javier Portuguez is our Reservoir Engineer. The reserves estimate report was submitted to our Committee of Reserves, which is formed by Mr. Iván Miranda (Exploration and Production Technical Manager), Mr. Jose Pisconte Lomas (Chief of Geology), and Mr. Manuel Gomez (Chief of Reservoir Engineering). Mr. Portuguez holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru and has 30 years of experience, developed as a production and reservoir engineer at Mercantile and Interoil Peru. Mr. Gomez holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru and has 16 years of experience, most of it as drilling, completion, stimulation, and reservoir engineer. Mr. Pisconte Lomas, holds a Geologist Engineering degree and a Regional Geology Master’s degree from Universidad Nacional Mayor de San Marcos and has 31 years of experience in the oil industry. Mr. Miranda holds a degree in Petroleum Engineering from Universidad Nacional de Ingeniería in Lima and a Petroleum Engineering Master’s degree from Texas A&M University of Texas—USA, and has 39 years of experience in the oil industry developed at PetroPeru, Unipetro ABC, and UNNA Energia.
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Production, Revenues, Prices and Costs:
The following table sets forth information regarding our production, revenues, prices and production costs for 2021, 2022, and 2023.
| For the year ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| Production volumes(1): | ||||||||||||
| Crude oil (Mbbl) | ||||||||||||
| Block I (terminated) | 195.9 | |||||||||||
| Block III | 192.4 | 225.6 | 587.2 | |||||||||
| Block IV | 690.7 | 850.8 | 877.6 | |||||||||
| Block V | 34.1 | 38.3 | 23.8 | |||||||||
| Total (crude oil Mbbl) | 1,113.1 | 1,114.7 | 1,488.6 | |||||||||
| Natural gas (MMcf) | ||||||||||||
| Block I (terminated) | 1,225.0 | |||||||||||
| Block III | ||||||||||||
| Block IV | 202.8 | 696.1 | 1.147.2 | |||||||||
| Block V | ||||||||||||
| Total (natural gas MMcf) | 1,427.9 | 696.1 | 1,147.2 | |||||||||
| Crude oil equivalents (Mboe) | 269.9 | 116.0 | 191.2 | |||||||||
| Total Company | 1,383.0 | 1,230.7 | 1,679.8 | |||||||||
| Average sales prices(2): | ||||||||||||
| Crude oil (US$/bbl) | 64.61 | 91.91 | 82.41 | |||||||||
| Natural Gas (US$/Mcf) | 5.23 | 2.62 | 2.73 | |||||||||
| Crude oil equivalents (US$/boe) | 58.34 | 85.10 | 74.26 | |||||||||
| Costs and expenses(2): | ||||||||||||
| Production expenses (US$/boe) | 20.92 | 21.35 | 14.16 | |||||||||
| Royalties (US$/boe) | 19.24 | 39.96 | 35.21 | |||||||||
| General and administrative expenses (US$/boe) | 2.37 | 2.67 | 2.23 | |||||||||
| Depreciation, depletion, amortization and accretion expenses (US$/boe) | 10.34 | 10.84 | 17.59 | |||||||||
| (1) | Hydrocarbons extracted from Block V belong to Perupetro, which in turns pays us a per barrel fee for extracted hydrocarbons. Hydrocarbons extracted from Blocks III and IV belong to UNNA Energia, which in turn pays a royalty to Perupetro for the amount of extracted hydrocarbons. |
| (2) | Crude oil sales volume differs from total production volume due to operational circumstances such as the inventory of product stored in our field batteries at the end of each monthly measurement. “Average sales prices” refers to the fees received in consideration for our extraction services, which do not equal the sales prices of crude oil. Average sales prices have been calculated using a basket price formula according to the service and license contracts of each block. Those pricing formulation is at a discount to global oil prices for Blocks I and V, and for Blocks III and IV we pay royalties on the oil extracted. Per unit costs have been calculated using sales volumes. |
Acreage, Productive and Development Wells, Drilling:
The following table sets forth certain information regarding the total developed and undeveloped acreage as of December 31, 2023.
| Formation(1) | Developed Acreage | Undeveloped Acreage | ||||||
| Block III | ||||||||
| Salina Mogollón | 7,700 | 3,758 | ||||||
| Redondo | 120 | 1,095 | ||||||
| Amotape | 1,750 | 2,370 | ||||||
| Total Block III | 7,700 | 39,029 | ||||||
| Block IV | ||||||||
| Pariñas | 4,179 | 3,402 | ||||||
| Palegreda | 7,564 | 2,553 | ||||||
| Mogollón | 1,505 | 2,571 | ||||||
| Total Block IV | 10,424 | 47,592 | ||||||
| Block V | ||||||||
| Verdun | 530 | 650 | ||||||
| Ostrea | 175 | 115 | ||||||
| Mogollón | 1,350 | 120 | ||||||
| Total Block V | 1,880 | 20,502 | ||||||
| Total | 20,004 | 107,123 | ||||||
| (1) | Represents the areas of the main reservoirs quantified by blocks, which are multi-reservoirs at different depth levels and overlap with each other. |
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As of December 31, 2023, we had a total of 514 producing wells. Our wells are oil wells, many of which also produce natural gas. We do not have interests in wells that only produce natural gas. The following table shows the number of development and exploratory wells drilled during 2021, 2022 and 2023 in Blocks III, IV and V.
| For the year ended December 31, | ||||||||||||||||
| 2021 | 2022 | 2021 | 2023 | |||||||||||||
| Development Wells | ||||||||||||||||
| Productive | 15 | 66 | 28 | |||||||||||||
| Dry | - | 2 | 1 | |||||||||||||
| Total | 15 | 68 | 29 | |||||||||||||
| Exploratory Wells | ||||||||||||||||
| Productive | 1 | - | - | |||||||||||||
| Dry | - | - | - | |||||||||||||
| Total | 1 | - | - | |||||||||||||
During 2021, 2022 and 2023 we invested S/33.9 million (US$9.1 million), S/174.6 million (US$47.0 million) and S/88.5 million (US$23.8 million), respectively, in drilling activities. During 2023, we drilled a total of 17 wells in Block IV (one well was classified as not productive) and 12 wells in Block III (so far all productive wells).
Under the terms of our agreement with Perupetro, we are obligated to abandon the wells that we have drilled or produced and that, at the end of the agreement, have no remaining reserves. As of December 31, 2023, we estimated that we will abandon 115 wells in Block I until the end of 2028, 7 wells in Block V through the end 2025, and 40 wells in Block III and 35 wells in Block IV before April 2045. We have created a provision in our financial statements for the costs relating to those well closings. See Note 5.A (iv) to our audited annual consolidated financial statements included in this annual report.
Gas Processing Plant
We own a gas processing plant located 7 km north of the city of Talara in Piura, Peru. We currently have a delivery and gas processing and fractioning contract with Enel Generación Piura (formerly known as EEPSA), according to which Enel Generación Piura delivers wet natural gas that it purchases from onshore and offshore gas operators in the area. We then process and fraction the gas into two products: (i) dry natural gas, which can be used as fuel in Enel Generación Piura’s gas-fired turbine; and (ii) natural gas liquids, which are sold in the Peruvian market. Under the terms of the agreement, we are responsible for all operating costs of the gas processing plant but are also entitled to keep revenues from the sale of the natural gas liquids to third parties after payment of a variable royalty, based on the volume of gas processed, to Enel Generación Piura. Our current gas processing and fractionation contract with Enel Generación Piura expires in May 2024.
Our gas processing plant has the capacity to process up to 44 MMcf per day. We processed 30.41 MMcf per day during 2021, 31.68 MMcf per day during 2022, and 28.48 MMcf per day during 2023 (a major maintenance intervention that is conducted every 5 years and in which major parts of the plant are replaced, took place in our plant during 17 days between August and September 2023). Approximately 82.4% of the volume processed by our gas processing plant depends on the gas volumes provided by Enel Generación Piura for processing and use on its gas-fired turbines. These volumes vary per month and depend upon the power dispatch curve of Enel Generación Piura among Peruvian power generation plants. In rainy months (December to April) where hydroelectric power generation in Peru is typically higher, gas volumes demanded by Enel Generación Piura are lower than in dryer months (May to November) in which activity of thermal generators tends to be higher. During 2023, approximately 11.9% of the volume processed by our gas processing plant depends on the volumes of gas extracted by UNNA Energia in Block IV, approximately 4.8% depends on the volumes of gas provided by Petroperu, and the remaining 0.9% was provided by SAVIA and CNPC.
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Fuel Storage Terminals
We are a 50% partner in Consorcio Terminales with a Peruvian affiliate of Oiltanking GmbH, one of the largest operators of independent terminals for bulk liquid storage. Consorcio Terminales was first awarded a concession for the operation of the South Fuel Terminals in 1997 and in 1998 of the North Fuel Terminals. The operation of the North Terminals ended on 2014 and the South Fuel Terminals were reverted to Petroperu in November 2019.
In June 2014, Terminales del Peru, a new consortium that included our subsidiary UNNA Energia and Oiltanking Peru, was awarded a concession for the operation of the North and Central Fuel Terminals for PetroPeru. The contracts have 20-year terms and consist of the operation of four terminals in the north and one terminal in the center of the country, providing storage and dispatching bulk liquid fuel. The contractual commitment of the committed investments was completed in 2021 investing approximately S/94.7 million (US$25.5 million) and achieving 100% completion on both projects. Regarding the additional investment (reimbursables), at the end of 2023, we reached a cumulative investment of S/440.9 million (US$119 million) out of the contractual commitment of S/690.6 million (US$186 million).
Our open-access terminals offer our customers dependable and critical handling and storage services for refined petroleum liquid products, maintaining high quality, safety, and environmental standards. We provide storage, handling and loading and uploading services for a broad range of refined petroleum liquid products, including gasoline, aircraft fuel, diesel, LPG and heavy fuel oil. We deliver the liquids into two types of transportation systems, railroad cars and cistern trucks. Because of the strategic location of our assets, our deep-water access, inland terminals and our aggregate storage capacity of 2.7 MMbbl in the North and Central Terminals, we believe that we are well-positioned to cover the needs of our clients, the two principal refineries in Peru (as of 2020). The map below shows the location of each of our fuel storage terminals in Peru.
Under the contracts, Terminales del Peru receives revenues paid in connection with monthly reserved volume in tanks for refined crude products (storage fee) and for volumes loaded and delivered into railroad cars or cistern trucks to each terminal (throughput fee). The storage fee per barrel, is based upon reserved volumes whether they are received or not. The throughput fee is paid based on effective barrels delivered per month. During 2021, 2022 and 2023, Terminales del Peru generated revenues of S/193 million (US$48.3 million), S/198.2 million (US$51.9 million) and S/194 million (US$52.2 million) (we are entitled to 50% of the joint operation revenues), respectively. Under the contract, Terminales del Peru is responsible for paying the fuel terminals operating and maintenance costs and also for paying a royalty fee to Petroperu based on effective barrels delivered each month.
At the current stage of the contracts, any capital expenditure approved by Petroperu that we invest in the fuel storage terminals can be recouped from any present and future royalties we owe to Petroperu.
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Other Terminal Operations
We are a 50% partner in Oiltanking Andina Services S.A.C. (“OTAS”). This subsidiary operates a fuel terminal named “Terminal Marino Pisco Camisea” under a contract subscribed with Pluspetrol to operate an export terminal for gasoline, diesel, propane and butane. In 2022, this terminal dispatched 23.7 million barrels and received 5.4 million barrels of natural gas liquids (LPG, Nafta, MDBS, B-100, ULSD, B5 S50 y Diesel 2). This contract term has been extended until November 30, 2027.
Additionally, we are also a 25% partner in LQS through OTAS, which operates the “Terminal de Químicos de Matarani”, which dispatched 58,372 tonnes of sodium hydrosulfide for international mining companies in 2023 and 57,508 tonnes in 2022. During 2021, 2022 and 2023 these activities generated revenues in the aggregate of US$6.6 million (S/26.4 million), US$7.9 million (S/30.2 million) and US$9.3 (S/34.5 million), respectively.
Real Estate
Our Real Estate segment is focused on the development and sale of affordable housing and regular housing projects, and was one of the largest apartment building developers in Peru in terms of number of units sold and value of sales in 2023. Since commencing our operations in 1987, we have developed approximately 1,509,894 m2 of affordable housing (approximately 24,451 units); approximately 402,198 m2 of housing (approximately 2016 units); approximately 170,416 m2 of office space (approximately 903 offices); and approximately 43,000 m2 of shopping centers (three shopping centers and strip malls). Moreover, we are currently building approximately 75,622 m2 of affordable housing (approximately 1,297 units). Between 2015 and 2023, our Real Estate segment sold 8,728 units, consolidating its leading position in the development, promotion, commercialization, and execution of housing projects. We have a total of seven projects currently in execution in the housing sector: Los Parques del Callao, Los Parques del Mar, Los Parques Comas Club Residencial, Los Parques de Comas Villas, Los Parques de Carabayllo, Parques de Huancayo and Parques de Piura. As of December 31, 2023, we have US$303 million of potential sales value with our current landbank.
The table below sets forth selected financial information for our Real Estate reportable segment.
| For the year ended December 31, | ||||||||||||||||
| 2021 | 2022 | 2023 | 2023 | |||||||||||||
| (in millions of S/, except as indicated) | (in millions of US$, except as indicated)(2) | |||||||||||||||
| Revenues(1) | 239.3 | 367.3 | 220.0 | 59.3 | ||||||||||||
| Profit for the year | 13.0 | 82.9 | 28.2 | 7.6 | ||||||||||||
| Profit attributable to non-controlling interest | 12.2 | (51.8 | ) | 16.8 | 4.5 | |||||||||||
| Net profit margin | 5.4 | % | 22.6 | % | 12.8 | % | 12.8 | % | ||||||||
| Real Estate Adjusted EBITDA | 36.9 | 137.7 | 54.6 | 14.7 | ||||||||||||
| Real Estate Adjusted EBITDA Margin (%) | 15.4 | % | 37.5 | % | 24.8 | % | 24.8 | % | ||||||||
| Backlog (in millions of S/)(3) | 179.8 | 167.9 | 153.9 | 41.5 | ||||||||||||
| Backlog/revenues ratio(3) | 0.89 | x | 0.46 | x | 0.7 | x | 0.7 | x | ||||||||
| (1) | In 2021, 2022 and 2023 we recognized S/7.2 million, S/146.3 million, and S/29.5 million (US$7.9 million) respectively, in revenues from land sales. |
| (2) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (3) |
For more information on our backlog, see “—Backlog.” Backlog is calculated as of the last day of the applicable period. Revenues are calculated for such period and converted into U.S. dollars based on the exchange rate published by the SBS at such period. |
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| For the year ended December 31, | ||||||||||||||||
| Adjusted EBITDA in the Real Estate Segment | 2023(1) | 2023 | 2022 | 2021 | ||||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||||||
| Profit (loss) of the year | 7.6 | 28.2 | 82.9 | 13.0 | ||||||||||||
| Financial expenses | 2.6 | 9.6 | 9.4 | 11.9 | ||||||||||||
| Financial income | (1.9 | ) | (7.1 | ) | (1.1 | ) | (2.3 | ) | ||||||||
| Interests for present value of financial asset or liability | (1.4 | ) | (5.3 | ) | (2.6 | ) | - | |||||||||
| Income tax | 6.3 | 23.3 | 42.9 | 6.6 | ||||||||||||
| Depreciation and amortization | 1.6 | 5.9 | 6.2 | 7.6 | ||||||||||||
| Adjusted EBITDA(2) | 14.7 | 54.6 | 137.7 | 36.9 | ||||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (In each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. |
We undertake a significant amount of the activities in our Real Estate segment with partners; through financing and commercial arrangements we use to purchase land and to develop real estate projects. See “—Financing.” See also “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—General—Real Estate.” As a result, a significant amount of our net profit in the Real Estate segment is attributable to the non-controlling interest of our partners.
Principal Real Estate Activities
Our real estate developments include the following products:
| ● | affordable housing; |
| ● | housing; and |
| ● | commercial real estate. |
Our affordable housing line of business began developing affordable housing projects in 2001, following the Peruvian government’s efforts to address the country’s housing deficit, particularly for low-income families. We launched the first major affordable housing project in Peru in 2007, Parque Agustino, in Lima’s El Agustino neighborhood. Since 2001, we have completed 18 affordable housing projects. As of December 31, 2023, we are in the process of developing three affordable housing projects, including construction, presales and procuring required authorizations and permits. These projects consist of expansions of projects previously completed by us. Affordable housing consists of apartments, usually ranging between 50 and 72 m2 in size, that are purchased using government-sponsored support programs. The Peruvian government has adopted the Nuevo Crédito MiVivienda and Techo Propio programs, among others, which promote access to affordable housing in Peru by providing government subsidies to individuals for the purchase of homes. In order for a unit to qualify for the Nuevo Crédito MiVivienda program, its selling price must range between S/65,200 and S/464,200. In order for a unit to qualify for the Techo Propio new housing purchase program, its selling price must be less than S/55,000 for a single-family home or less than S/128,400 for a multi-family dwelling.
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In order to be eligible for an affordable housing subsidy under the Nuevo Crédito MiVivienda program, a purchaser must not own any other home or have benefitted from a housing subsidy program in the past, among other requirements. A purchaser must also provide a down payment between 10% and 20% of the total purchase amount. Housing subsidies under this program fluctuate between S/7,300 and S/25,700 which incentivize purchasers with fixed interest rates so long as they pay their mortgage loan payments on a timely basis. In order to be eligible for an affordable housing subsidy under the Techo Propio program, a purchaser must have a monthly income that does not exceed S/ 3,715 and must not have received any other government-sponsored housing benefit in the past, among other requirements. A Techo Propio purchaser must also show proven savings equal to at least 0.3% of the total purchase amount. Housing subsidies under this program is S/43,312.5. Purchasers of subsidized housing under both programs are also not required to pay a value-added tax normally applicable to residential purchases.
We develop substantially all of our affordable housing projects on land purchased from the private sector. To the extent these projects meet the requirements of a particular government subsidy program, purchasers can purchase units with government subsidies. Some of our affordable housing projects, however, such as Los Parques de Comas, are developed through government bidding processes. Government subsidy programs like Nuevo Crédito MiVivienda and Techo Propio have driven the demand for affordable housing in Peru, which has in turn increased our sales of affordable housing units. Additionally, Fondo Mi Vivienda offers Green Certification bonuses for projects that optimize the use of energy and water. In this regard, 100% of our housing projects have this certification, which implies a reduction in the client’s loan rate.
Our housing developments consist of residential buildings comprised of apartments with a mid-to high-price range that do not qualify for government subsidies. Since 1987, we have developed 38 housing developments. As of December 31, 2023, we are developing six affordable housing projects, which are in the construction stage. Our housing units typically range between 50 m2 and 142 m2 in size.
Substantially all of our affordable housing and housing development projects are located in Lima. We have also purchased land to develop four affordable housing projects in Piura. We intend to develop affordable housing projects in other cities outside of Lima.
The table below sets forth the number of units sold and not yet delivered, and the number of units delivered, as well as the value of units sold and our sales revenue for the periods indicated.
| For the year ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| Number of Units Delivered(1): | ||||||||||||
| Affordable Housing | 1,437 | 1,272 | 1,150 | |||||||||
| Housing | 77 | 35 | 13 | |||||||||
| Total | 1,514 | 1,307 | 1,163 | |||||||||
| Number of Units Sold and Not Yet Delivered(1): | ||||||||||||
| Affordable Housing | 1,479 | 1,141 | 834 | |||||||||
| Housing | 22 | 3 | - | |||||||||
| Total | 1,501 | 1,144 | 834 | |||||||||
| Total m² Delivered: | ||||||||||||
| Affordable Housing | 87,560 | 78,311 | 71,401 | |||||||||
| Housing | 5,775 | 1,925 | 999 | |||||||||
| Total | 93,335 | 80,236 | 72,400 | |||||||||
| Total m² Sold and Not Yet Delivered: | ||||||||||||
| Affordable Housing | 104,889 | 74,463 | 50,660 | |||||||||
| Housing | 1,650 | 225 | - | |||||||||
| Total | 106,539 | 74,668 | 50,660 | |||||||||
| Value of Units Delivered (in millions of S/): | ||||||||||||
| Affordable Housing | 201 | 196 | 186 | |||||||||
| Housing | 21 | 12 | 4.6 | |||||||||
| Total | 222 | 208 | 189.6 | |||||||||
| (1) | We typically pre-sell our affordable housing and housing units before construction begins and continue to sell during construction, although we recognize revenues at the time of delivery of units. |
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Our commercial real estate line of business focuses on developing and selling office and commercial buildings, such as shopping centers. On certain occasions, we have operated our commercial real estate and later sold it, such as Larcomar, a landmark shopping center which we built in 1998 and sold in 2010. We have also developed commercial real estate buildings in connection with our affordable housing and housing projects, such as the Parque Agustino shopping center. Since 1987, we have developed 16 office buildings, three shopping centers and one medical center.
Land Bank
We typically purchase land to develop real estate projects with the intention to begin construction within a 12-to 18-month period after the purchase of the land. We may also, from time to time, purchase land for subsequent resale. As of December 31, 2023, we owned approximately 68.2 hectares, of which 99.2 % is located in Lima and 0.8% outside of Lima. We continually evaluate opportunities to purchase new land for our real estate development projects.
We have a 50.4% indirect interest in Almonte through Viva, which as of December 31, 2023, owns approximately 68.2 hectares of undeveloped land in Lurín, located 30 km south of Lima. On May 31, 2018, Almonte signed a purchase agreement with PRINSUR for the sale of 420.9 hectares of land by Almonte to PRINSUR for an aggregate amount of US$92.7 million, the final installment of which was paid in February 2020 upon the satisfaction of certain conditions precedent.
Financing
We generally fund land purchases for our housing and commercial real estate projects through cash from our operations. For our affordable housing projects, we generally partner with real estate investment funds and insurance companies that provide between 60% and 70% of the total capital required to purchase the land and cover certain pre-construction costs in exchange for equity in the project. Once we acquire land for a particular real estate development project, we obtain working capital through a credit line from a financial institution, which we utilize to finance additional project needs as they arise. We also obtain financing through pre-construction sales for our affordable housing and housing projects and, to a lesser extent, our commercial real estate projects. Our affordable housing and housing projects generally require less outside financing because they are generally financed with pre-construction sales. In 2022, Viva obtained a loan from Inter-American Development Bank (IDB) Invest for US$20 million, which will be repaid in 10 years.
Sales and Marketing
We typically pre-sell our affordable housing and housing units prior to and during construction and use the related proceeds to finance the construction of the units. Our commercial and sales processes differ depending on the type of development and market segment of the development. We primarily sell our real estate development projects through an internal sales force that is assigned to projects and, to a lesser extent, external brokers on a non-exclusive, commission-fee basis. Our marketing efforts consist of newspaper advertisements, radio and television commercials, billboards, and promotional offers for referrals. We also advertise our real estate projects on our website and social media.
We believe our brand is associated with product quality, professional operations, and reliable post-sale customer service. We provide customer service call centers through which residents can report complaints or defects. Engineers respond with site visits, and repairs are made as long as the property continues to be covered by the applicable warranty or guarantee.
For our affordable housing projects, we provide post-sale customer service through our Ayni program, which aims to preserve the long-term value of our affordable housing developments by promoting a cooperative community life. Through this program, we distribute manuals that teach best practices for living in communities, offer leadership workshops, budget workshops, promote small business development, facilitate conflict resolution and provide other services. These services are provided for a six-to eight-month period following project delivery. In 2012, we initiated the Ayni contest for residents of our affordable housing projects with the aim of stimulating the sustainability of their community. Participants present an enhancement project for their community, such as a recreation center, and a jury selects the best project, which we fund and construct.
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In 2023, 84.8% of our Real Estate segment’s revenue was derived from affordable housing and 2.1% from housing, 13.1% from other businesses (sale of landbank, rents, among others), and none of the revenue was derived from commercial real estate.
In 2022, 53.3% of our Real Estate segment’s revenue was derived from affordable housing and 3.3% from housing, 43.4% from other businesses (sale of landbank, rents, among others), and none of the revenue was derived from commercial real estate.
In 2021, 84.3% of our Real Estate segment’s revenue was derived from affordable housing and 8.7% from housing, 7% from other businesses (sale of landbank, rents, among others), and none of the revenue was derived from commercial real estate.
As of December 31, 2023, 2022, and 2021, the profit (loss) for the year attributable to our Real Estate segment was S/28.2 million (US$ 7.6 million), S/82.9 million (US$21.7 million), and S/13.0 million (US$3.2 million), respectively. As of December 31, 2023, 2022, and 2021, the Adjusted EBITDA attributable to our Real Estate segment was S/54.6 million (US$14.7 million), S/137.7 million (US$36.0 million), and S/36.9 million (US$9.2 million), respectively, and the Adjusted EBITDA Margin for such periods was 24.8%, 37.5%, and 15.4%, respectively.
Competition
The Peruvian real estate development industry is highly competitive. The market is fragmented and no single company has a significant share of the national market. The principal competitors for our Real Estate segment are Paz Centenario Inmobiliaria, Corporación Líder Peru S.A., Urbana Peru, Los Portales, Imagina Grupo Inmobiliario, ENACORP, Besco S.A., and DH Mont, among others. In the coming years, we expect more competition from domestic and foreign real estate development companies who recognize the growth potential in the Peruvian residential market. The main factors that drive competition are product design and amenities, price, location and post-sale service offerings.
E&C
Our E&C segment has a more than a 90-year track record, undertaking a broad range of activities such as: civil works, electromechanical activities and engineering services and building construction. We provide E&C services to a diverse range of end-markets, mainly focused on mining, industrial, oil and gas, infrastructure, and real estate, among others. The following chart sets forth our 2023 revenues by end-market.
2023 E&C Revenues by End-Market
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Our E&C segment mainly undertakes private-sector projects, particularly those with a high degree of complexity, which enable us to develop innovative and tailor-made solutions to our clients. We provide our clients with a comprehensive service offering by leveraging our various areas of expertise and engaging in virtually all aspects of project execution, thereby capturing a larger share of investment projects.
In 1999, we adopted the “lean construction” philosophy as a pillar in our design and construction projects. “Lean construction” aims to create value for customers by better understanding and considering clients’ needs to improve project design, functionality, and cost optimization. “Lean construction” also provides techniques and tools that significantly reduce construction waste by improving planning reliability, process design, coordination, and collaboration.
Although we primarily undertake engineering and construction projects in Peru, our clients often ask to undertake engineering and construction of large and complex projects in other countries, such as Mexico, the Dominican Republic, Bolivia, Guyana, Panama, and Chile. As a result, we have developed extensive experience executing projects throughout Latin America. To further capitalize on our capabilities and expertise, we have expanded our activities into other key markets, such as Chile and Colombia, which have been benefitting from high levels of investment and are aligned with our areas of strategic focus. In 2023, S/1,162.5 million (US$313.1 million) of our E&C revenues were derived from international projects outside of Peru.
The acquisition of two companies, Vial y Vives and DSD Construcciones y Montajes, which were later merged, has solidified our presence in Chile. While we have been undertaking projects in Chile since 1995, such as the construction of the transmission line and crusher of the Caserones mine for SCM Minera Lumina Copper, we believe we will continue benefiting from the established and long-lasting presence in the country of Vial y Vives -- DSD. Moreover, through the acquisition of Morelco in December 2014, an engineering and construction company focused on the oil and gas and other energy sectors, we established a presence in the Colombian market.
Given the prevalence of mining operations in our main markets, we have significant expertise with respect to specialized engineering and construction services for the mining sector. As a result, we are one of the leading mining construction companies in Latin America and leverage this expertise within our main markets and in the undertaking of complex projects across the region.
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The table below sets forth selected financial information for our E&C business segment.
| As of and for the year ended December 31, | ||||||||||||||||
| 2021 | 2022 | 2023 | 2023(1) | |||||||||||||
| (in millions of S/, except as indicated) | (in millions of US$) | |||||||||||||||
| Revenues | 2,754.0 | 2,679.2 | 2,653.5 | 714.6 | ||||||||||||
| Loss for the year | (81.5 | ) | (147.5 | ) | (2.3 | ) | (0.6 | ) | ||||||||
| Loss attributable to non-controlling interest | (0.6 | ) | (1.8 | ) | (0.7 | ) | (0.2 | ) | ||||||||
| Net profit margin | (3.0 | )% | (5.5 | )% | (0.1 | )% | (0.1 | )% | ||||||||
| E&C Adjusted EBITDA | 89.6 | (30.3 | ) | 180.7 | 48.6 | |||||||||||
| E&C Adjusted EBITDA Margin | 3.3 | % | (1.1 | )% | 6.8 | % | 6.8 | % | ||||||||
| Backlog (in millions of S/)(2) | 3,374.0 | 3,660.6 | 2,613.1 | 703.8 | ||||||||||||
| Backlog/revenues ratio(2) | 1.2 | x | 1.4 | x | 0.98 | x | 0.98 | x | ||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | For more information on our backlog, see “—Backlog.” Backlog is calculated as of the last day of the applicable year. Revenues are calculated for such year and converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year. |
| For the year ended December 31, | ||||||||||||||||
| Adjusted EBITDA in the E&C Segment | 2023(1) | 2023 | 2022 | 2021 | ||||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||||||
| Profit (loss) of the year | (0.6 | ) | (2.3 | ) | (147.5 | ) | (81.5 | ) | ||||||||
| Financial expenses | 21.1 | 78.3 | 70.0 | 121.7 | ||||||||||||
| Financial income | (0.3 | ) | (1.1 | ) | (2.0 | ) | (1.9 | ) | ||||||||
| Interests for present value of financial asset or liability | 0.1 | 0.3 | 6.2 | - | ||||||||||||
| Income tax | 21.7 | 80.4 | 15.8 | 14.1 | ||||||||||||
| Depreciation and amortization | 6.8 | 25.1 | 27.2 | 37.1 | ||||||||||||
| Adjusted EBITDA(2) | 48.7 | 180.7 | (30.3 | ) | 89.6 | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (In each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. |
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Principal Engineering and Construction Activities
The following charts sets forth our 2023 revenues by E&C activity.
Civil Works
Our civil works activities focus on infrastructure projects, including earthworks, the construction of roads, highways, transportation facilities (e.g., mass transit systems such as Line 1 of the Lima Metro), dams, hydroelectric plants, water supply and sewage projects, excavation, structural concrete construction and tunneling. Our civil works projects are generally large and complex, requiring the use of large construction equipment and sophisticated managerial and engineering techniques.
Electromechanics
Our electromechanical activities line of business focuses on the construction and assembly of concentrator plants, pipelines, transmission lines, oil and gas networks, and electric substations, predominantly for energy projects and industrial plants.
Engineering Services
Our engineering activities consist of a broad range of services relating to engineering, supervision, geometrics and environmental consultancy, including pre-investment studies, pre-feasibility studies, process design, project development, supervision of executive designs and construction management, including construction site reviews.
Building Construction
Through our building construction activities, we respond to Peruvian real estate demand for the construction of affordable housing projects, residential buildings, hotels, office buildings, shopping centers, and industrial plants.
Other Services
Other services we provide include procurement services, maintenance of plants and industrial facilities and rental of construction equipment.
Major Projects
The Company plays an active role in the infrastructure sector in Peru, as well as other countries in Latin America, including the construction of roads, hotels, hospitals, shopping centers, housing developments, concentrator plants, hydroelectric power plants, thermal power plants and transmission lines as well as water supply and sewage projects, irrigation projects and dam building, among others. Throughout our history, we have participated, on our own or through minority or majority interests in joint operations, in a diverse range of landmark projects, including the following:
| ● | in 2011, the first stretch of Line 1 of the Lima Metro for the Peruvian Ministry of Transport and Communications and in 2014, the second stretch of Line 1 of the Lima Metro for the Peruvian Ministry of Transport and Communications; |
| ● | in 2015, expansion of the process plant for the Cerro Verde mine, one of the biggest concentrator plants in Latin America; |
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| ● | in 2018, construction and rehabilitation of an expressway known as Line Amarilla for Vinci; |
| ● | in 2019, construction and rehabilitation of the Norvial highway; and |
| ● | in August 2023, construction of a coarse particle flotation plant for the Quellaveco Mine. |
We currently have a diversified portfolio of ongoing projects in a wide range of sectors in Peru and the other countries where we operate, which we develop through our subsidiaries and through interests in joint operations, including the following:
| ● | design, engineering, supply and construction of the new terminal of the Jorge Chavez Lima Airport, which is scheduled to be completed in 2025;
| |
| ● | earthworks for the construction of platforms and the water dam for the Buenaventura gold project in the San Gabriel mine, which is scheduled to be completed in October 2024; |
| ● | integral solution for a steam and energy generation system for the closure of the combined cycle in Termosuria, of Ecopetrol, which is scheduled to be completed in August 2024; and |
| ● | nautical real estate project located in the north of Peru (Mancoraland), covering an area of 62 hectares that includes various facilities such as breakwaters and an inland marina to house mega yachts and multiple other types of boats, which is scheduled to be completed in 2026. |
As of December 2023, in the mining sector we constructed 11 process plants, carried projects in more than 80 mining locations, and developed more than 800 km access roads. Additionally, on the energy sector, we executed 17 hydroelectric central power plants and more than 2,000 km of transmission lines. In the buildings sector, we executed 19 hotels, more than 15,000 residential apartments and 15 industrial projects. In the infrastructure sector, we executed more than 2,000 km of constructed highways, and on the oil and gas sector more than 1,400 km of oil and gas pipelines.
Clients
We believe we have developed long-term relationships with many clients as a result of our performance over the years and are focused on the successful and on-time execution of complex projects. Our extensive experience of operational excellence has allowed us to gain deep market knowledge and expertise, which helps us better serve our clients. Key E&C clients include highly credit-worthy mining, power, oil and gas, transportation, and infrastructure development companies, such as AngloAmerican, BHP, Southern Peru, Cobra Peru, Marcobre, Antamina, Buenaventura, Lima Airport Partners (LAP), Corporación Aceros Arequipa, Compañía Minera TECK Quebrada Blanca S.A., Minera Spence S.A., ENAP Refinerías, Minera Escondida LTDA, Celulosa Arauco, Ecopetrol and Cenit, among others.
Project Selection and Bidding
We win new engineering and construction contracts through private and public bidding processes or direct negotiation, from a variety of sources, including potential client requests, proposals from existing or former clients, opportunities sought by our commercial team and from requests by the Peruvian government. In 2021, 2022 and 2023, 94.6%, 92.7% and 73.4% of our revenues in our E&C segment, respectively, derived from private-sector contracts. During 2023, our subsidiary Morelco executed more projects with Ecopetrol and Cenit, which increased our participation in public contracts. The Peruvian government and its agencies typically award construction contracts through a public bidding process conducted in accordance with the Peruvian State Contracting Law (Ley de Contrataciones del Estado), however, our business strategy and results do not depend on the generation of new public procurement contracts, particularly in our E&C segment. In the private sector, in addition to obtaining new projects, another important source of revenue involves increases in the scope of work to be performed in connection with already existing projects. These arrangements are typically negotiated directly with the client, often during the course of the work we are already performing for that client.
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We have a designated team that oversees the management of project proposals and a commercial team that reviews and evaluates potential projects in order to estimate costs. We also have a business development committee, which makes decisions about whether or not to apply for projects. In considering whether to bid for a potential project, we principally consider the following factors: competition and the probability of being awarded the project; project size; the client; our experience undertaking similar projects; and the availability of resources, including human resources. As part of the project selection process, our commercial team performs a detailed cost analysis utilizing sophisticated software we developed to assist in determining whether the project is viable and cost-effective. If we choose to pursue a project, a budget leader is assigned to prepare the offer that is eventually presented to our potential client.
Despite the budgeting risks generally associated with engineering and construction contracts, our management believes that our experience generally allows us to estimate our project costs accurately. Our project management teams also periodically review project budgets for inconsistencies between budgeted and actual costs in order to recover for cost variations through contract renegotiation. Budgeting risks are also mitigated through advance payments. Considering that we receive advance payments for most of our E&C contracts, our E&C projects typically do not require significant working capital investment. Our E&C segment secures financing primarily to purchase machinery and equipment for our construction services.
We are required, in the majority of our construction contracts, to provide a performance bond to guarantee project performance and completion, which remain in effect for the contract’s duration. We are also required to provide performance bonds to secure any advance payments provided to us by our clients. These bonds are periodically reduced during the project’s execution in accordance with project advancement. After the expiration of the contract term, we are typically required to provide an additional performance bond that remains valid for one or two years to guarantee the quality of works executed.
Contracts
We principally enter into four types of engineering and construction contracts:
| ● | Cost-plus fee contracts. The contract price is based upon actual costs incurred for time and materials plus a fee, which may be a percentage of the costs incurred or a pre-determined fee. Sometimes, cost-plus fee contracts include a target price, and a contractual arrangement that determines our responsibility in the event the total cost of the project exceeds the target price or the benefit we receive if the total contract price results in cost savings. Cost-plus fee contracts tend to involve the least budgeting risk for us. |
| ● | Unit price contracts. The contract price is based upon a price per unit (i.e., variable quantities of work priced at defined unit rates). Each line item of the project budget, such as cubic meter of earth excavated or cubic meter of concrete poured, has a defined price, but the quantities of the units may vary. Our bid price reflects our estimate of the costs that we expect to incur for each work unit. These contracts typically include an “escalation” clause which is essentially an adjustment mechanism to account for Peruvian inflation. |
| ● | Lump-sum contracts. The contract price is fixed. Our bid is meant to cover all costs and include a profit. The principal risk in these types of contracts are errors in calculating our costs, including those of raw materials; miscalculation of the number of units or workers needed to complete the project; unanticipated technical complexities; or other unexpected events or circumstances that may increase our costs. |
| ● | Engineering, procurement and construction (EPC) contracts. EPC contracts, known as “single source” or “turn-key” contracts, are also lump-sum contracts. Pursuant to EPC contracts, we provide a broad range of basic and detailed engineering services, including preparation of the technical project specifications, detailed drawings and construction specifications; technical studies; and identification of lists of materials and equipment necessary for the project. These contracts, which we utilize predominantly for our mining contracts, require a high-level of expertise and generally involve the most budgetary risks for us. |
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In 2023, 65% of our E&C segment’s revenue was derived from civil works, 27% from electromechanical activities, 8% from engineering services and 0.04% from building construction. In 2023, 73% of our E&C segment’s revenue was derived from private sector contracts, and 27% was derived from public-sector contracts.
In 2022, 31% of our E&C segment’s revenue was derived from civil works, 64% from electromechanical activities, 4% from engineering services and 1% from other services. In 2022, 93% of our E&C segment’s revenue was derived from private sector contracts, and 7% was derived from public-sector contracts.
In 2021, 25% of our E&C segment’s revenue was derived from civil works, 68% from electromechanical activities, 4% from engineering services and 3% from other services. In 2021, 95% of our E&C segment’s revenue was derived from private sector contracts, and 5% was derived from public-sector contracts.
For further information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations.”
Raw Materials
The main inputs our E&C segment used are, among others, fuel and hydrocarbons derivatives, cement, and steel. These and the other products may be subject to the availability of raw materials, such as oil and iron, and commodity pricing fluctuations, which we monitor on a regular basis. Normally, our aim is to enter into master supply agreements for periods between six months and one year. Although we obtain most of our inputs needs in Peru, we believe we have access to numerous global supply sources. The availability of these inputs, however, may vary significantly from year to year due to various factors including client demand, producer capacity, market conditions, transport costs and specific material shortages, and we may incur additional costs in obtaining them.
We purchase and lease the equipment we require for our E&C business from several local and international suppliers, currently with no significant concentration with any suppliers. While we do not have difficulty obtaining required equipment, we may face difficulties finding skilled personnel able to operate certain equipment and machinery.
Competition
We generally compete with some of the largest contractors in Peru and in the countries we operate. Because the E&C sector is highly competitive, the markets served by our business generally require substantial resources and experienced, highly-skilled technical personnel. Main competitors of our E&C segment include local companies such as Besalco S.A., Cosapi S.A., JJC Contratistas Generales S.A., and international companies such as Techint S.A.C., SSK Montajes e Instalaciones S.A.C., Skanska del Peru S.A., Mota-Engil Peru S.A., Salfacorp S.A., OHL, Echeverria Izquiedo, Sigdo Koppers, Ferrostaal Chile, Acciona, Grupo FCC, Sacyr, Ismocol, Termotecnica, Masa, Thiess and Redpath, among others. For certain projects, due to the size of the project, expertise required and other factors, we may choose to partner with our competitors, including the aforementioned companies.
Competition within the E&C segment is driven by performance, skill and project execution capabilities for completing complex projects in safe, timely and cost-efficient manner.
Backlog
We define our backlog as the U.S. dollar equivalent value of revenue we expect to realize in the future as a result of performing work under multi-period contracts that we have entered into. Backlog is not a measure defined by IFRS, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog. For contracts denominated in Soles or other local currencies, amounts have been converted into U.S. dollars based on the exchange rate published by the SBS, in the case of Peru, or other relevant authority, in the case of other jurisdictions, on December 31 of the corresponding year.
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We do not include backlog in this annual report for: (i) in our Infrastructure segment, our Norvial toll road concession, because its revenues from the concession are derived from toll fees charged to vehicles using the highway, and, as a result, such revenues are dependent on vehicular traffic levels; and (ii) our Energy segment because: (a) its revenues from hydrocarbon extraction services are dependent on the amounts of oil and gas we produce and their market prices, which fluctuate significantly; (b) our revenues from our gas processing plant are dependent on the amount of gas we process and market prices for natural gas liquids, which fluctuate significantly; and (c) our revenues from our fuel storage terminal operation partially depend on the volume of fuel dispatched.
When we present backlog on a reportable segment basis, we do not include eliminations that are included in our consolidated backlog. For a description of how we calculate our backlog, see our reportable segment backlog presented below. We have revised prior backlog data included in this annual report to exclude the presentation of entities that are presented as discontinued operations.
Our consolidated backlog as of December 31, 2023 was S/4,278.3 million (US$1,152 million). We expect to recognize as revenues 64.7% of our backlog by December 31, 2024, 23.6% by December 31, 2025 and 11.7% during 2026. The following table sets forth our consolidated backlog from December 31, 2021 to December 31, 2023.
Our backlog in 2022 was higher than our backlog in 2023, mainly due to the increase in the backlog of the Engineering and Construction business. We cannot assure you that we will be able to continue obtaining sufficient contracts in the future in number and magnitude to grow our backlog. Additionally, the number and amounts of new contracts signed can fluctuate significantly from period to period.
The table below sets forth our ending backlog for 2021, 2022, and 2023 accounting for opening backlog for each year, annual contract bookings and annual revenues recognized.
| 2021 | 2022 | 2023 | ||||||||||
| (in millions of S/) | ||||||||||||
| Opening backlog (end of prior year) | 4,997.4 | 4,665.0 | 5,178.4 | |||||||||
| Contract bookings during the year | 3,032.3 | 4,454.8 | 2,749.3 | |||||||||
| Revenues recognized during the year | (3,147.3 | ) | (3,792.1 | ) | (3,649.4 | )) | ||||||
| Ending backlog (end of current year) | 4,882.3 | 5,327.6 | 4,278.3 | |||||||||
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The charts below set forth our consolidated backlog breakdown by end-market, geography and client sector as of December 31, 2023.
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Backlog by End-Market
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Backlog by Geography
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Backlog by Client Type
Infrastructure Backlog
In reflecting an Infrastructure contract in our backlog, we assume that each party will satisfy all of its respective obligations under the contract. For our Infrastructure backlog, we only include contracted revenues expected to be paid during the next three years following the backlog calculation date. Infrastructure backlog in this annual report does not include our Norvial toll road concession.
Our Infrastructure segment backlog does not include intersegment eliminations. We calculate our Infrastructure backlog as follows:
| ● | Mass transit: for the Lima Metro, our Infrastructure backlog assumes that for 2024, 2025, and 2026, we will operate 44 trains at full operation, which in the aggregate will travel 4.8 million kilometers per year. |
| ● | Toll roads: for our Survial and Canchaque concessions, we assume our contractually agreed upon annual fee, adjusted for inflation and exchange rate for our 2024, 2025, and 2026 backlog. |
| ● | Water treatment: for La Chira, for 2024, 2025, and 2026, backlog is calculated to include the fees we will receive under the concession for our operation and maintenance, adjusted for inflation. |
| ● | Operation and maintenance of infrastructure assets: for UNNA Transporte, for 2024, 2025, and 2026, backlog is calculated based on contracts signed. |
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Our Infrastructure backlog as of December 31, 2023 was US$536.0 million. We expect to recognize as revenues 33.8% of our backlog by December 31, 2024 and 66.2% of our backlog thereafter.
The following pie chart sets forth our Infrastructure backlog breakdown by line of business as of December 31, 2023.
Backlog by Line of Business
The table below sets forth our ending Infrastructure backlog for 2021, 2022 and 2023, accounting for opening backlog for each year, annual contract bookings and annual revenues recognized.
| 2021 | 2022 | 2023 | ||||||||||
| (in millions of S/) | ||||||||||||
| Opening backlog (end of prior year) | 1,968.8 | 1,702.8 | 1,952.8 | |||||||||
| Contract bookings during the year | 464.6 | 1,036.9 | 803.2 | |||||||||
| Revenues recognized during the year | (651.3 | ) | (730.6 | ) | (765.9 | ) | ||||||
| Ending backlog (end of current year) | 1,782.1 | 2,009.1 | 1,990.1 | |||||||||
Real Estate Backlog
Our Real Estate segment backlog reflects sales contracts with buyers for units that have not yet been delivered and will be recognized as revenues once they are delivered.
Our Real Estate segment backlog as of December 31, 2023 was US$38.7 million. We expect to recognize as revenues 97.87% of our backlog by December 31, 2024, and 2.13% thereafter. However, the ongoing political uncertainty and the high interest rates, which have significantly increased economic uncertainty, may continue to impact our ability to perform our Real Estate backlog in the short term. As conditions are unpredictable and rapidly changing, it is difficult to foresee the full extent of the impact on our backlog in the short term.
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The following chart sets forth our Real Estate backlog breakdown by type of real estate activity as of December 31, 2023:
The table below sets forth our ending Real Estate backlog for 2021, 2022 and 2023, respectively, accounting for opening backlog for each year, annual contract bookings and annual revenues recognized.
| 2021 | 2022 | 2023 | ||||||||||
| (in millions of S/) | ||||||||||||
| Opening backlog (end of prior year) | 241.2 | 171.8 | 163.2 | |||||||||
| Contract bookings during the year | 178.0 | 362.1 | 209.7 | |||||||||
| Revenues recognized during the year | (239.3 | ) | (366.1 | ) | (219.0 | ) | ||||||
| Ending backlog (end of current year) | 179.8 | 167.9 | 153.9 | |||||||||
E&C Backlog
To include an engineering and construction contract in our backlog, we assume that each party will satisfy all its respective obligations under the contract. We also make assumptions, in agreement with the client, regarding the total expected contract price in the case of unit price and cost-plus fee contracts and the amount of the contract that will be completed in each year. We adjust our backlog periodically to account for developments related to each project. For projects related to joint operations or equity investments, we only include our percentage ownership of the joint operation’s or equity investment’s backlog. Our E&C segment backlog does not include intersegment eliminations.
Our backlog amounted to US$704 million as of December 31, 2023. We expect to recognize as revenues 80.9% of such backlog by December 31, 2024 and 19.1% of such backlog thereafter. We believe that our backlog, which as of December 31, 2023 represented approximately 1.4x of our related 2023 revenues, provides visibility of our revenues, although backlog may not always be an accurate indicator of future revenues. Moreover, we believe our backlog is strategically targeted to our key end-markets such as mining, infrastructure, power, energy and real estate. The diversification of our backlog allows us to benefit from different local and international drivers including: counter-cyclical demand from governments, pro-cyclical demand from projects with private companies, diversified and atomized reputable and creditworthy clients, demand linked to local economic cycles and demand linked to global economic cycle (i.e., Oil & Gas and Mining).
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The following pie charts set forth our E&C backlog breakdown by end-market, geography, client sector and contract type as of December 31, 2023.
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Backlog by End-Market
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Backlog by Geography |
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Backlog by Client Type
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Backlog by Client Contract |
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The table below sets forth our ending E&C backlog for 2021, 2022 and 2023, accounting for opening backlog for each year, annual contract bookings, cancellations during the year and annual revenues recognized.
| 2021 | 2022 | 2023 | ||||||||||
| (in millions of S/) | ||||||||||||
| Opening backlog (end of prior year) | 3,273.0 | 3,223.8 | 3,558.1 | |||||||||
| Contract bookings during the year | 2,449.1 | 3,132.2 | 1,719.6 | |||||||||
| Revenues recognized during the year | (2,348.1 | ) | (2,695.5 | ) | (2,664.6 | ) | ||||||
| Ending backlog (end of current year) | 3,374.0 | 3,660.6 | 2,613.1 | |||||||||
Warranties
For certain of our contracts, we are required to provide performance bonds to ensure compliance with contractual obligations such as construction works, operation and maintenance of infrastructure assets, among others. The amount of the performance bond varies on a case-by-case basis, depending on the value of the project. Performance bonds are usually renewed annually until the contractual obligation which they intend to guarantee is fully satisfied.
As part of our real estate sales contracts, we provide a six-month warranty for latent defects, which covers hidden flaws not discoverable through inspection. The warranty extends to a five-year term if the defects are caused by: (i) the use of materials below the requisite quality standards; (ii) poor execution; or (iii) faulty land. We also provide a ten-year warranty for structural defects and assume the terms and conditions of our finishes suppliers’ warranties.
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Quality Assurance
In 2023, our operations were certified according to the following international standards:
| BUSINESS UNIT | COMPANY | ISO 37001:2016 | ISO 9001:2015 | ISO 45001:2018 | ISO 14001:2015 | NB-415 R | ASME U | ASME S | |||||||||||||||||||||
| AENZA | 2 | |||||||||||||||||||||||||||
| AENZA S.A.A. | 1 | |||||||||||||||||||||||||||
| AENZA Servicios Corporativos S.A. | 1 | |||||||||||||||||||||||||||
| INFRASTRUCTURE | 5 | 2 | 2 | 2 | ||||||||||||||||||||||||
| CARRETERA ANDINA DEL SUR S.A.C | 1 | |||||||||||||||||||||||||||
| CARRETERA SIERRA PIURA S.A.C | 1 | |||||||||||||||||||||||||||
| RED VIAL 5 S.A. | 1 | |||||||||||||||||||||||||||
| TREN URBANO DE LIMA S.A. | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| UNNA TRANSPORTE S.A.C | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| ENERGY | 2 | 2 | 2 | 2 | ||||||||||||||||||||||||
| UNNA ENERGIA S.A. | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| TERMINALES DEL PERÚ | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| ENGINEERING AND CONSTRUCTION | 5 | 5 | 5 | 5 | 1 | 1 | 1 | |||||||||||||||||||||
| CUMBRA Ingeniería S.A. | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| CUMBRA Perú S.A. | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| ECOLOGIA Y TECNOLOGÍA AMBIENTAL S.A.C. | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| MORELCO S.A.S. | 1 | 1 | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||||||
| VIAL Y VIVES-DSD S.A. | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| Total | 14 | 9 | 9 | 9 | 1 | 1 | 1 | |||||||||||||||||||||
Infrastructure - ISO 9001 ISO 14001 ISO 45001:
| ● | UNNA Transporte: Operation and conservation of the railway infrastructure |
| ● | Tren Urbano de Lima S.A.: Operation and Conservation Management of the Railway Infrastructure and Rolling Stock of the Electric Transport System - Line 1. |
Energy (UNNA Energía | Terminales del Perú) - ISO 9001 ISO 14001 ISO 45001:
| ● | Production operations of oil and gas in oil lots I, III, IV and V; gas processing in Planta de gas Talara; Reception, storage and dispatch of products derived from hydrocarbons in Terminals Eten, Salaverry, Chimbote, Supe y Callao; and support processes. |
| ● | ISO 37001 for management and operation of oil & gas production, gas processing, and reception, storage, and dispatch of products derived from hydrocarbons. |
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E&C
| ● | Cumbra Ingeniería: ISO 14001, ISO 9001, ISO 45001. In Research, Design and Development of Projects: Engineering (E), Procurement (P), Construction (C), EPC, Assembly, Pre-Commissioning, Commissioning, Start-Up, Construction Management, Projects Supervision, Operation and Maintenance; in the sectors of Mining, Energy, Hydrocarbons, Industry, Transportation, Water, Building and Infrastructure in general, and ISO37001. |
| ● | Cumbra Peru: ISO 14001, ISO 9001, ISO 45001 in Research, Design and Development of Projects: Engineering (E), Procurement (P), Construction (C), EPC, Assembly, Pre-Commissioning, Commissioning and Start-Up; in the sectors of Mining, Energy, Hydrocarbons, Industry, Transportation, Water,Building and Infrastructure in general, and ISO 37001. |
| ● | Morelco: ISO 14001, ISO 9001, ISO37001, ISO 45001 in Research, Design and Development of Projects: Engineering (E), Procurement (P), Construction (C), EPC, Assembly, Pre-Commissioning, Commissioning, Start-Up, Operation and Maintenance; in the sectors of Mining, Energy, Hydrocarbons, Industry, Transportation, Water, Building and Infrastructure in general, ASME S, ASME U, and The National Board of Boiler & Pressure Vessel Inspectors, and ISO 37001. |
| ● | Vial y Vives—DSD: ISO 14001, ISO 9001, ISO 37001, ISO45001, in research, Design and Development of Projects: Engineering (E), Procurement (P), Construction (C), EPC, Assembly, Pre-Commissioning, Commissioning, Start-Up and Maintenance; in the sectors of Mining, Energy, Hydrocarbons, Industry,Transportation, Water, Building and Infrastructure in general, ISO 37001 and PEC Excelencia. |
| ● | Ecologia y Tecnología Ambiental: ISO 14001, ISO 9001, ISO 45001 in research, Design and Development of Projects: Environmental Engineering, Industrial Cleaning and Waste Management; in the sectors of Mining, Energy, Hydrocarbons, Industry, Transportation, Water, Building and Infrastructure in general, and ISO 37001. |
Environmental, Social and Governance
AENZA has a renewed approach on Environmental, Social, and Governance (ESG), focused on sustainable value creation for all our stakeholders and led by our own Board of Directors through the ESG Committee, which is headed by Gema Esteban, a member of our Board of Directors and IG4’s Global Head of ESG. We aim to conduct business in a manner that is economically viable, socially beneficial, and environmentally responsible.
As part of AENZA’s transformation process, we are implementing a new Environmental and Social Management System (ESMS), which signals our strong commitment to sustainability. The ESMS enables efficient coordination through corporate committees, involving representatives from both AENZA and the business units. These committees are instrumental in establishing common standards, setting shared key performance indicators (KPIs), defining ambitious goals, and meticulously monitoring progress. Every strategic ESG priority, such as safety, health and environment, social management, human resources, diversity, and communications, is managed by a specific corporate committee.
The ESMS is designed to ensure seamless implementation of plans across each business unit, preserving the unique aspects of their respective industries while adhering to our corporate guidelines and international standards. This tailored approach allows us to adjust our environmental and social management practices to meet the different needs and challenges of each unit, maintaining a consistent standard throughout the organization and promoting both uniformity and synergy in our sustainability efforts.
Our high level of commitment to ESG factor management is reflected in our score for S&P’s Corporate Sustainability Assessment, which has almost doubled over the last two years, from 23 points in 2021 to 44 points in 2023.
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This performance has led to our inclusion for the second consecutive year in the S&P/BVL Peru General ESG Index 2023. This index recognizes the performance of companies listed on the BVL Peru General that meet demanding environmental, social, and corporate governance criteria. This recognition exalts AENZA as one of the leading sustainable companies for investors in the Peruvian stock exchange.
Additionally, our ESG performance has been recognized with a series of awards. We won the Rimac Seguros Excellence Award in the Gold Category, the highest recognition for “best comprehensive management of occupational risks” in the construction sector. We secured second place in Ositrán’s “Good Practices in Gender Equality” contest for our initiative “Mujeres que Avanzan,” aimed at reducing the gender gap in the transportation sector. We also achieved second place in the Women’s category of the GRI Infra Awards Andean 2023 for our project “+Mujeres en Transporte,” which successfully doubled the percentage of women working in Lima Metro Line 1, from 15% to 30% in six years. Furthermore, for the second consecutive year, we won first place in the MAPFRE Excellence in Safety Award, with Cumbra Peru scoring the highest among thousands of MAPFRE’s evaluated clients in Peru.
We also continue to make progress in a significant number of areas:
| ● | We have solid technical and environmental standards based on international standards and ISO 14001 environmental certification. By using these standards and information, we have continued to generate favorable conditions for the preservation of the environment across our businesses. |
| ● | Our management system allows us to identify risks related to environmental issues, which has allowed us to develop policies, processes and controls to adequately mitigate and manage these risks. |
| ● | The focus of our social investment projects includes furthering education and capacity to foster job creation, as well as the promotion of responsible citizen behavior, particularly among our users and neighboring communities. The following are key programs we instituted for the benefit of society: |
| - | Metro Culture: We conduct workshops that transform trains and train stations into centers of social and cultural education to promote respect and tolerance. In 2023, we collaborated with urban art areas (of over 5,641 m2), using themes related to Peruvian pride to recover space. We incorporated 74,217 people in face-to-face health campaigns and more than 1,400 people participated in our discussions related to health care via virtual platforms. |
| - | Aprende a Emprender program: 400 women participated in this program, aimed at providing tools to women entrepreneurs to enhance their product sales. |
| - | Road Safety Education: This program promotes our culture of safety and accident prevention by training communities that surround the roads and highways we operate or maintain. In 2023, we provided 28 training courses with a total participation of 2,800 students. |
| - | Social and Economic Women Empowerment: In 2023, through the "Aprende a Emprender” Program, we worked with more than 400 women from communities in the area of influence of Line 1 of the Lima Metro. Norvial and Survial helped them become entrepreneurs and achieve social and economic empowerment. We trained them in different topics such as sales, finance, entrepreneurship, leadership and soft skills, among others. |
| - | Ayni: This social support program aims to improve the quality of life in urban areas by promoting respectful coexistence among new owners of our real estate projects. The initiative trains neighbors in several legal and managerial matters, as well as in conflict management and leadership. In 2023, the program trained 1,164 people. |
| - | Labor Capabilities: This is a recruitment program where we share construction knowledge and provide training to community members in building techniques, risk prevention and leadership skills to increase the employability of members of the local communities, generate jobs, reduce project risks, develop more efficient recruiting processes, and strengthen the trust with the local communities. In 2023, we trained 533 participants, 52% of whom joined the Company or its subsidiaries. |
| - | Corporate Trainee Program: This program is designed to attract and train young talents. The program started in July 2022, with two cohorts per year (January and July) and with participation of about 121 trainees as of the date of this annual report. |
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Regulatory Matters
Set forth below is a description of the regulatory framework applicable to our company. We believe we are in compliance, in all material respects, with applicable laws and regulations in all of our reportable segments.
Infrastructure
Infrastructure and Public Services through Public Private Partnership Contracts
The Peruvian state has implemented a regulatory framework (Legislative Decree No. 1543, Legislative Decree No. 1362 and its regulations, approved by Supreme Decree No. 240-2018) that sets forth procedures and mechanisms for enhancing private investment for the development of public infrastructure, public services, any ancillary services, applied research projects and/or technological innovation, through Public-Private Partnerships (PPP) and Projects with State Assets.
The main aspects of this legal framework are the following:
| 1. | The Ministry of Economy and Finance (Ministerio de Economía y Finanzas) is the governing authority of the National System for the Promotion of Private Investment (SNPIP), composed by ministries and public agencies of the national government, the Agency for the Promotion of Private Investment—ProInversión, and regional and local governments. |
| 2. | Investors participating in Public Private Partnerships are entitled to receive from the Peruvian state: (a) in the case of self-financed projects, tolls or fees to be collected from final consumers; (b) in the case of co-financed projects, payments from the government entity awarding the project; and (c) any other financing structure agreed between the parties. |
| 3. | The management of Public Private Partnership contracts by the three levels of government (central or national, regional and local) is regulated by this legal framework. |
| 4. | For projects in regulated sectors, the monitoring of Public Private Partnership contracts is subject to the provisions of the Law No. 27-332, Framework Law for Regulators on Private Investment in Public Services. According to this law, OSIPTEL, OSITRAN, SUNASS and OSINERGMIN should primarily safeguard the compliance of service levels agreed in Public Private Partnership contracts. For this purpose, Public Private Partnership contracts must establish the necessary arrangements to ensure timely and efficient supervision during the performance of the contract. In addition, governmental entities are required to ensure timely participation of regulatory agencies when the authority of any such regulatory agencies is an issue in an arbitration conducted with a private investor. |
| 5. | Favorable opinions for the Public Private Partnership Agreements from the General Comptroller Office of Peru are required. The General Comptroller will issue a report on any aspects that may jeopardize the financial capacity of the Peruvian state, according to Law No. 27-785, Organic Law of the National Control System and the General Comptroller of Peru. |
| 6. | Investors interested in participating as bidders in private investment processes must review the list of restrictions and prohibitions established in the Public Procurement Law. Whether an investor is barred from participating shall be determined through administrative channels, and such restriction may apply to any expected strategic partners or to companies who have exercised direct control over the investor. |
| 7. | The development of projects related to assets owned by the Peruvian state (Legislative Decree No. 674, Law Promoting Private Investment in State Enterprises and its regulations enacted by Supreme Decree No. 070-92-PCM) can be carried out by private sector initiatives, without committing any public resources or transferring any risks to public entities, unless expressly required by law. |
Each of our subsidiaries Norvial, Survial, Canchaque and Line 1 has entered into a concession agreement with the Peruvian Ministry of Transportation and Communications. La Chira has entered into concession agreements with the Ministry of Housing, Construction & Sanitation and Sedapal S.A. These agreements were entered into in accordance with the provisions in force at the time of their execution.
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Infrastructure Construction and Safety
Infrastructure concessionaires must assure that the construction companies they hire to construct infrastructure projects comply with rules that apply to construction projects. In addition, companies engaged in road construction must comply with the guidelines issued by the Road and Railways General Directorate of the Peruvian Ministry of Transportation and Communications and with the National Road Infrastructure Management Regulation regarding road construction, maintenance and safety. These regulations establish procedures for authorizing road construction and approving work contracts, among others.
Environmental Regulations
Peruvian environmental laws and regulations have become increasingly stringent over the last decade. All industries and projects are subject to Peruvian laws and regulations concerning water, air and noise pollution, and the discharge of hazardous substances. The main legislation governing environmental matters is Law No. 28-611, General Environmental Law; Law No. 27,446, the Law of the National System of the Environmental Impact Evaluation (the “SEIA”); the regulations of the SEIA Law, approved by Supreme Decree No. 019-2009-MINAM; and several environmental regulations that have been issued under the General Environmental Law, SEIA and other laws by the government with the collaboration of the Peruvian Ministry of the Environment.
Since the enactment of the General Environmental Law on October 15, 2005, several technical environmental regulations have been issued and this environmental regulatory framework is generally revised and updated regularly. Some regulations apply generally to Peruvian industries and some technical regulations are issued for specific industries.
The main environmental rules applicable to infrastructure projects include those described above in “—Engineering and Construction—Environmental Regulation.”
Terms of our Concessions
Our concessions are subject to certain terms and conditions established in each concession agreement. During the term of the concessions, we are responsible for the construction and maintenance of the infrastructure necessary for their operation. The concession agreements establish minimum capital stock requirements for our concessionaire subsidiaries as follows: US$15 million (S/55 million), US$8 million (S/27 million), US$0.8 million (S/2.7 million), S/46 million and S/100 million for Norvial, Survial, Canchaque, La Chira and the Lima Metro, respectively.
The concession agreements establish grounds for termination including mutual agreement of the parties thereto, force majeure, the breach of certain contractual obligations and unilateral early termination by the government. Additionally, in the case of La Chira and the Lima Metro, the agreement can be terminated unilaterally by the grantor, with the payment of compensation. On the expiration date, all of the assets that are essential for the operation of the concession are considered the state’s property and no compensation is paid to the concessionaire.
In the event that changes in legislation or regulations that are exclusively related to the financial conditions of the earnings and/or costs associated with the investment, operation or conservation of the infrastructure, affect the economic terms of the contract by 10% or more, the concession agreements set forth economic terms adjustment mechanisms aimed at restoring the economic and financial equilibrium. See “—Infrastructure—Principal Infrastructure Lines of Business.”
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Energy
Exploration and Production
UNNA Energía is engaged in two major activities relating to the exploration and production of oil and gas: exploration and production of oil fields; and providing services to the oil industry.
Exploration and Production of Oil Fields
Peru’s hydrocarbon legislation regarding oil and gas exploration and production activities includes, among others, by law No. 26221 or the Hydrocarbons law whose amended and restated text was approved by Supreme Decree No. 42-2005-EM and the regulations governing the qualification of petroleum companies; the exploration and production of hydrocarbons; the transportation of hydrocarbons; and safety requirements in such activities.
The foregoing regulations define the roles of Peruvian government agencies that regulate the oil and gas industry; provide the framework for the promotion and development of hydrocarbon activities based on the principles of private-sector competition and access to all economic activities; and set the safety and security standards as well as the legal proceedings for carrying out operations.
The Peruvian Constitution establishes that the government is the sole owner of hydrocarbons found underground within its national territory. Perupetro is the government entity authorized to negotiate and enter into agreements for the exploration and/or production of hydrocarbons.
The Peruvian Ministry of Energy and Mines is responsible for devising energy and mining policies; supervising activities in the energy and mining sectors; and promoting investments in those sectors. Within the Peruvian Ministry of Energy and Mines, the General Director of Hydrocarbons (“DGH”) is responsible for regulating the development of petroleum, oil and gas industry and the General Director of Environmental Affairs related to Hydrocarbons is responsible for reviewing and approving regulations related to environmental risks associated with the abovementioned activities of this field.
OEFA is a public regulatory agency ascribed to the Peruvian Ministry of the Environment and is responsible for evaluating and ensuring compliance with applicable environmental rules covering hydrocarbon activities, as well as for imposing fines and other administrative penalties when a breach of an environmental regulation occurs.
OSINERGMIN is a regulatory entity affiliated to the Presidency of the Council of Ministers’ (Presidencia del Consejo de Ministros) office and is responsible for ensuring compliance with safety and security standards in the energy and mining industries, as well as imposing fines and other administrative penalties.
UNNA Energía is subject to the supervision, authority and regulations enacted by the foregoing agencies.
Regarding hydrocarbon exploration and production activities, companies are required to enter into either a licensing or a services agreement with Perupetro; nevertheless, other contractual arrangements are permitted with prior approval from the Peruvian Ministry of Energy and Mines. The foregoing agreements are governed by private law and must be approved by the Peruvian Ministry of Energy and Mines and the Peruvian Ministry of Economy and Finance.
Under licensing agreements, licensees are entitled to explore and produce hydrocarbons in an area set forth by the agreement, are granted ownership over the extracted hydrocarbons and may trade the hydrocarbons with no limitations on sales prices, except in the event of a national emergency. As consideration for the grant of rights under the licensing agreement, the licensee pays royalties to the government.
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Services agreements grant contractors the right to perform hydrocarbon exploration and production activities in a determined area and receive compensation according to the production of hydrocarbons. The contractor is technically and financially responsible for the operations, but Perupetro maintains ownership over the hydrocarbons extracted. UNNA Energia was party to a service agreement with respect to Blocks V until October 2023, and to licensing agreements with respect to Blocks III and IV. Each block has an independent contract with Perupetro. As for Block I, the term of the corresponding service agreement concluded on December 26th, 2021.
Services and licensing agreements are intended for the development, production and eventually transportation of hydrocarbons, as well as for certain storage activities. Services and licensing agreements commonly include a minimum performance schedule guaranteed by performance bonds and the obligation to establish corporate guarantees to secure the contractor’s compliance with the terms of such agreements.
Additionally, a company must be qualified by Perupetro prior to entering into hydrocarbon exploration and production agreements. In order to qualify, a company must meet the standards under the Qualification of Petroleum Companies Rules approved by Supreme Decree No. 029-2021-EM, that require companies to demonstrate that they have the technical, legal and financial capacity to comply with all the obligations they will assume under the agreement with Perupetro. Such capacities are measured according to the characteristics of the area to be explored or produced, the expected investment required for the project, and the strict fulfillment of the rules regarding prior consultation (if applicable), citizen participation and environmental issues related to the operation’s performance. Upon a positive evaluation, the company is issued a qualification certificate from Perupetro that allows it to initiate the negotiations of the agreement. Notwithstanding the foregoing, the company remains responsible for obtaining all other licenses, permits and approvals required by applicable regulation.
Under the current regulation, 30 years is the maximum term of services and licensing agreements for the production of crude oil. On the other hand, the production of natural gas and condensates-related services or licensing agreements have a maximum term of 40 years. AENZA currently acts as UNNA Energía’s guarantor in all the Block III, Block V and Block VI contracts.
UNNA Energía must comply with Supreme Decree No. 043-2007-EM regarding the safety of both company staff, facilities and equipment for its activities. OSINERGMIN is the authority responsible for the supervision and enforcement of the foregoing rules.
Services to the Petroleum Industry
Peruvian regulation provides that all companies that enter into a service agreement with any company that holds a licensing or services agreement must be registered as a subcontractor in the Hydrocarbons Public Registry in case they render any of the following services: (i) geological studies, geophysical studies, petroleum engineering related to drilling operations, production and well services; or (ii) construction of oil pipelines, gas pipelines, refineries and their maintenance, and specialized transportation by land, air, sea or river. The registration of a company as a subcontractor in the Hydrocarbons Public Registry is subject to the prior authorization of the DGH.
On June 1, 2004, UNNA Energía was included as a subcontractor for the petroleum industry in the Hydrocarbons Registry of Lima’s Public Registry of Legal Entities; such registry remains in force as of the date of this annual report.
Environmental Regulations
The Peruvian Ministry of Energy and Mines is responsible for enacting environmental regulations for the oil and gas sector. The petroleum, oil and gas environmental protection regulation, approved by Supreme Decree No. 039-2014-EM, sets out the legal framework and specific rules applicable to the exploration, production, refinement, processing, transportation, commercialization, storage and distribution of hydrocarbons, with the aim of preventing, controlling and remedying the negative environmental impacts arising from the foregoing activities.
The Peruvian Ministry of the Environment establishes general environmental rules applicable to economic activity in general, in contrast to the specific rules enacted by the Peruvian Ministry of Energy and Mines regarding the oil and gas sector. Environmental laws and regulations are enforced by the National Environmental Enforcement Agency, OEFA (Organismo de Evaluación y Fiscalización Ambiental) which was created in 2008. Sanctions range from warnings and fines to suspension of activities and the imposition of the obligation to adopt specific tasks to mitigate environmental damages, among others. In this regard, a breach of the obligations contemplated in the Environmental Impact Assessments in the hydrocarbons sector may originate fines up to 30,000 Tax Units (S/151.5 million or US$40.8 million) according to the applicable law.
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The main environmental rules applicable to UNNA Energía’s hydrocarbon projects include:
| ● | obtaining an environmental certification and adopting the necessary measures to prevent and/or mitigate environmental impacts resulting from their activities; |
| ● | meeting minimum size, environmental and safety requirements applicable to worksites; handling and storing of hydrocarbons pursuant to safety and environmental requirements; establishing programs to monitor environmental issues; and |
| ● | providing training on environmental matters related to employee and personnel activities and responsibilities, especially with respect to regulations and procedures established for environmental protection and the environmental and legal consequences of non-compliance. |
Operation of Terminals
In accordance with the Glossary, Acronyms and Abbreviations for the Hydrocarbons Subsector approved by Supreme Decree No. 032-2002-EM, a terminal is a facility that includes storage tanks, submarine lines or docks for receiving or dispatching liquid hydrocarbons and facilities related to activities of storage and reception and/or dispatch of liquid hydrocarbon from/to vessels.
UNNA Energía’s activities as a part of Terminales del Peru fall under the scope of the Hydrocarbons Storage Safety Regulation, approved by Supreme Decree No. 052-93-EM. Terminales del Peru is registered in the Hydrocarbon Registry of OSINERGMIN and is authorized to perform the reception, storage and dispatch of hydrocarbons from vessels and trucks on the terminals. This regulation establishes the conditions under which UNNA Energía can operate and maintain storage facilities for hydrocarbons. For instance, the regulation specifies the technical requirements for storage systems, which vary depending on the kinds of hydrocarbons stored. Moreover, pursuant to this regulation, UNNA Energía must establish procedures to minimize potential risks that these facilities present for employees, third parties and properties.
Terminales del Peru operates five storage terminals (Callao, Eten, Salaverry, Chimbote and Supe) under the operations contract for the Central Terminals and the operations contract for the North Terminals, both signed with PetroPeru.
Gas Processing Plants
In accordance with the Glossary, Acronyms and Abbreviations for the Hydrocarbons Subsector, approved by Supreme Decree No. 032-2002-EM, a processing plant is a facility where the natural characteristics of hydrocarbons are changed to break them into the different compounds that comprise them, as well as the subsequent transformations to convert the hydrocarbons into fuel of specific qualities and suitable for transportation. This includes the facilities where the impurities, hydrogen sulfide, carbon dioxide, water and hazardous components are removed from natural gas.
The processing and dividing activities of UNNA Energía in Talara’s gas plant are governed by hydrocarbons refining and processing regulations, including regulations on the design, construction, operation and maintenance of refineries and hydrocarbons processing plants, the oil refining process, the manufacture of natural asphalts, oil and lubricants, basic petrochemical activities and the processing of natural gas and condensates. To comply with these regulations, UNNA Energía must take cautionary measures in order to protect the safety of its employees and its facilities, protect the environment, preserve energy resources and ensure the quality of the products or services it delivers. For instance, Talara’s processing gas plant operation must be authorized by the General Direction of Hydrocarbons and OSINERGMIN and comply with fire safety regulations. In the event of an accident, UNNA Energía must notify OSINERGMIN, the Peruvian Ministry of Energy and Mines, the Peruvian Ministry of Labor, and the Peruvian Social Security Administration, according to the seriousness and type of the accident.
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Real Estate
Since 1987, we have been operating in the Peruvian real estate sector. In 2008, we incorporated Viva to concentrate the Group’s activities in this sector including promoting and managing real estate projects including public interest housing, residential and commercial real estate projects.
Zoning Regulations
Article 79 of the Municipalities Organic Law (Law No. 27-972) establishes that municipal governments are the exclusive authority responsible for approving urban and rural development plans, as well as the zoning of urban areas under their jurisdiction. Peruvian regulation states that urban zoning refers to the division of a municipal jurisdiction in zones for specific usage, such as residential, commercial, industrial or mixed-use.
The main zoning rules applicable to our real estate projects include the following: obtaining a construction license from the corresponding local municipality before commencing construction, reconstruction, conservation or repair of any property.
Environmental Regulations
The Environmental Protection Regulation for real estate, urbanism, construction and regularization related projects is approved by Supreme Decree No. 015-2012-VIVIENDA - “Reglamento de protección Ambiental para proyectos vinculados a las actividades de Vivienda ,urbanismo, construcción y saneamiento” (modified by the Supreme Decree N°. 019-2014-VIVIENDA, Supreme Decree N°. 008-2016-VIVIENDA, Supreme Decree N°. 010-2017-VIVIENDA, Supreme Decree N°. 020-2017-VIVIENDA and Supreme Decree N°.015-2021-VIVIENDA) sets out to prevent, mitigate, control and remedy negative environmental impacts that may arise from real estate developments. Prior to initiating construction works, companies are required to obtain an environmental authorization from the Housing, Urbanism, Regularization or Construction National Directorate of the Peruvian Ministry of Housing, Construction and Sanitation and to comply with the provisions set forth in the corresponding environmental impact assessment.
The main environmental rules applicable to our real estate projects include the following:
| ● | undertaking an environmental impact assessment; and |
| ● | requesting the environmental classification of our projects, which depends on the environmental risks associated therewith. |
According to the new legal regulation (DS-015-2021-VIVENDA) that modifies DS-015-2012-VIVIENDA, it includes:
| ● | Approval of the Advance Classification of projects that present common or similar competition characteristics in the housing sector; and. |
| ● | Comply with regulations related to the protection of archaeological remains, restricted domain areas, among others. |
Licenses
Article 10 of the amended and restated Text of the Urban Habilitation and Buildings Law No. 29090, approved by Supreme Decree No. 006-2017, and the local regulation establish the license requirements for urban habilitation and construction, depending on land size, the dimensions of the work to be undertaken and the financial target.
Upon completion of the real estate development and construction stages, as the case may be, the following requirements must be met:
| ● | for urban development, the reception of the works (recepción de la obra) must be requested to the corresponding municipal government in compliance with Article 19 of the amended and restated Text of the Urban Habilitation and Buildings Law; and |
| ● | for construction, the conformity of the works (conformidad de obra) must be requested to the corresponding municipal government in compliance with Article 28 of the amended and restated Text of the Urban Habilitation and Buildings Law, accompanying the request with the construction plans and the construction statement (a description of the technical conditions and characteristics of the work performed). |
Likewise, the company also takes into account law N° 31313 of Sustainable Urban Development and Supreme Decree No. 006-2023-Housing Regulation of Social Housing.
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Exclusive and Common Property Real Estate Units Regimes
The Law on the Buildings Regularization, on the Edification Declaration Proceeding and on the Exclusive and Common Property Real Estate Units Regime, approved by Law No. 27157, establishes the legal regime applicable to real estate comprised of assets with exclusive and common property, including, among others, (i) apartment buildings; (ii) condominiums; (iii) units under co-ownership; and (iv) commercial spaces, such as galleries and malls. The foregoing construction projects must include internal by-laws prepared or approved by the sponsor or builder, or by the owners with the vote of the majority of participating owners, the content of which is regulated in Article 42 of the aforementioned law. Articles 40 and 41 of the foregoing law itemize the assets and services that qualify as common.
Owners of real estate units have the opportunity to choose between the exclusive and common property regime, and the independent and co-ownership regime. The internal by-laws, the owner’s assembly minutes, all construction plans, architectural division plans, parametric boundaries and the construction statement must be registered in the Real Estate Registry of the corresponding jurisdiction. Upon completion of the proper registries, units are registered independently from one another.
Fondo Mivivienda
The acquisition of public interest housing units developed by Viva is often financed by Fondo Mivivienda S.A., a government owned financial institution established in 1998 by Law No. 26912 and Law No. 28579, with the purpose of (i) promoting and financing the acquisition, bettering and construction of houses, especially those of social interest; (ii) carrying out activities related to the fostering of capital flows to the housing financing market; (iii) participating in the primary and secondary markets of mortgage credits; and (iv) contributing to the development of the capital markets.
The Peruvian government has adopted the Nuevo Crédito MiVivienda and Techo Propio programs, among others, which promote access to affordable housing in Peru by providing government subsidies to individuals for the purchase of homes. For a unit to qualify for the Nuevo Crédito MiVivienda program, its selling price must range between S/65,200 and S/464,200. In order for a unit to qualify for the Techo Propio new housing purchase program, its selling price must be less than S/55,000 for a single-family home or less than S/128,400 for a multi-family dwelling.
To be eligible for an affordable housing subsidy under the Nuevo Crédito MiVivienda program, a purchaser must not own any other home or have benefitted from a housing subsidy program in the past, among other requirements. A purchaser must also provide a down payment between 10% and 20% of the total purchase amount. Housing subsidies under this program fluctuate between S/7,300 and S/25,700, which incentivize purchasers with fixed interest rates so long as they pay their mortgage loan payments on a timely basis. In addition, a Green Bond subsidy of S/5,400 is added when projects are sustainable, such our affordable housing projects in Viva. To be eligible for an affordable housing subsidy under the Techo Propio program, a purchaser must have a monthly income that does not exceed S/3,715 and must not have received any other government-sponsored housing benefit in the past, among other requirements. A Techo Propio purchaser must also show proven savings equal to at least 0.3% of the total purchase amount. Housing subsidies under this program are S/43,312.5. Purchasers of subsidized housing under both programs are also not required to pay a value-added tax normally applicable to residential purchases.
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Anti-Money Laundering / Counter Financing of Terrorism (AML/CFT)
Construction and real estate companies are required to comply with applicable anti-money laundering laws and regulations in the countries where the Group operates (Peru, Colombia, and Chile). In that sense, AENZA has implemented an AML/CFT Program that includes but is not limited to:
| ● | AML policies and procedures. |
| ● | Know Your Customer (KYC) and due diligence (DD) policies and procedures. |
| ● | Enhanced due diligence for high-risk clients. |
| ● | Ultimate beneficial owner information. |
| ● | OFAC and sanctions program. |
| ● | Annual training to employees, top management, and directors. |
| ● | Compliance Officer reporting directly to the board of directors to ensure independence. |
| ● | Filing of suspicious activity reports (SAR’s) to local Financial Intelligence Unit. |
E&C
Regulatory Framework Applicable to Contracts with the Public Sector
As of the date of this annual report, Peru’s Public Procurement Law, approved by Supreme Decree No. 082-2019-EF (Texto Único Ordenado de Ley de Contrataciones del Estado) and its Regulations which, in turn, were approved by Supreme Decree No. 344-2018-EF, governs the acquisition of goods, provision of services and works contracted with public entities. Article 29 of Supreme Decree No. 344-2018-EF establishes that, at the beginning of the procurement process, the contracting public entity must prepare a technical file describing the characteristics of the services it intends to contract and the selection process for its counterparts, among other specifications.
The selection processes are established in Article 53 of Supreme Decree No. 344-2018-EF as follows:
| ● | public biddings (licitación pública), applicable to goods and works; |
| ● | public tenders (concurso público), applicable to services, including consulting services; |
| ● | simplified award (adjudicación simplificada), applicable for the acquisition of any of the following: (i) goods, if their value exceeds S/41,200 and is under S/480,000; (ii) services, if their value exceeds S/41,200 and is under S/480,000; and (iii) works, if their value exceeds S/41,200 and is under S/2,800,000; |
| ● | electronic reverse auction (subasta electrónica inversa), applicable to goods and services with values exceeding S/39,600; |
| ● | selection of individual consultants (selección de consultores individuales), applicable for the hiring of qualified consultants who do not need teams of personnel or additional professional support, if their value exceeds S/41,200 and is under S/60,000; |
| ● | price comparison (comparación de precios), applicable to goods and services that are easy to obtain in the market and that are not manufactured, produced, supplied or provided under a particular description or set of instructions given by the contracting entity, if their value exceeds S/41,200 and is under or equal to S/77,250; and |
| ● | direct contracting (contratación directa), applicable to goods, works and services, in emergency situations arising from catastrophic events, involvement of national security, shortages, among other specific scenarios set forth in the regulations. |
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In addition, Supreme Decree No. 344-2018-EF establishes that the selection processes include the following phases:
| ● | in the case of public biddings, public tenders and simplified award: notice; registration of participants; submission and reply of inquiries and observations; absolution of inquiries and observations; notice of bid rules in final version; submission of bids; evaluation and qualification of bids; and award (articles 70, 79 and 88); |
| ● | in the case of the selection of individual consultants: notice; registration of participants; submission of bids; evaluation and qualification of bids; and award (article 92); and |
| ● | in the case of price comparison: notice to at least three bidders, submission of bids, and award to the lowest bid (articles 98 and 99). |
Article 46 of Peru’s Public Procurement Law establishes that any participants in a public procurement process must be registered in the Peruvian National Suppliers Registry and must not be banned from contracting with the state. Article 9 of Supreme Decree No. 344-2018-EF establishes that this registration has an indefinite validity and that all contractors must keep information updated.
Bidders may participate in the selection process as part of a joint operation, in which case all members of the joint operation must be registered in the Peruvian National Registry of Suppliers and will be jointly liable for all consequences arising from the joint operation’s participation in the selection process and the execution of the agreement. Certain exceptions to the abovementioned joint liability for joint operations may apply, in cases where a contractor proves that only one party is liable to be sanctioned due to the nature of the infraction, the joint operation formal undertaking or the joint operation agreement.
Cumbra Peru and Cumbra Ingeniería are registered in the Peruvian National Suppliers Registry as a construction and a consulting company, respectively.
Article 35 of Supreme Decree No. 344-2018-EF establishes the types of contracts that may be entered into by public entities:
| ● | lump-sum (sistema a suma alzada), applicable when the amounts, scales and technical specifications are determined in the terms and conditions of the selection process. The bidder submits its proposal indicating a fixed amount and a term for the completion of the agreement; |
| ● | unit price, rates or percentages (sistema de precio unitario, tarifa o porcentajes), applicable when the nature of the service to be provided does not allow an accurate determination of the required quantities or dedication time; |
| ● | lump-sum and unit price, rates or percentages mix (esquema mixto de suma alzada y precios unitarios), applicable when the included items have known quantities or quantities which can be known with accuracy and precision, they can be contracted under the lump sum scheme, however when items where the quantities cannot be known have to be contracted under the unit price system; and |
| ● | fixed amount plus success fee (honorario fijo y comisión de éxito), applicable in contracts for rendering services. The fixed amount and success fee may be estimated on the basis of percentages. |
Article 36 of Supreme Decree No. 344-2018-EF establishes that, in the case of goods and works, the terms and conditions of the selection process must indicate the execution type of the agreement as follows:
| ● | “turn-key” (llave en mano), when completion is subject to the construction, equipment assembly and, if applicable, the assisted operation of works. In case of goods procurement, the installation and commissioning of such goods are also included; and |
| ● | bid contest (concurso oferta), when completion is subject to the submission of the technical file and the completion of the works. |
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Peru’s Supervisory Authority on Public Procurement (Organismo Supervisor de las Contrataciones del Estado, or OSCE, by its Spanish acronym) is a public-sector entity within the Peruvian Ministry of Economy and Finance, that oversees the selection processes carried out by public entities; manages the Peruvian National Registry; imposes penalties to suppliers that violate the provisions set forth in Peru’s Public Procurement Law, its Regulations and other related provisions; and informs the government’s General Comptroller Office (Contraloría General de la República) regarding violations to the regulations when damages are caused against the State.
Pursuant to the recent amendments to the Public Procurement Law, companies sentenced for corruption charges, among other criminal offences, or companies whose representatives have admitted committing corruption acts, will be prohibited from participating in public procurement processes.
Regulatory Framework Applicable to Contracts with the Private Sector
Parties to a private-sector agreement may freely determine the contract type and its contents as long as it complies with certain legal requirements, including the provisions set forth in Article 1353 of the Peruvian Civil Code (which states that all contracts, including innominate contracts, must comply with the rules of Section VII of the Peruvian Civil Code, absent a statute specific to said contract type that collides with said rules). Cumbra Peru and Cumbra Ingeniería participate in private-sector contracts for engineering and construction.
Construction Activities in Peru
Legal Framework
Peru’s Law for the Promotion of Private Investment in Construction, approved by Legislative Decree No. 727 (Ley de Promoción de la Inversión Privada en Construcción), states that construction activities in Peru are in the public interest and a national priority. According to Section F of the Fourth review of the United Nations International Statistical Industrial Classification (ISIC), construction activities typically consist of the construction of dwellings, buildings and stores; and the construction of large-scale infrastructure projects such as highways, bridges, tunnels, railways, irrigation systems, sewage systems, industrial facilities, pipelines and electric lines, among others. Cumbra Peru has developed numerous projects in the construction sector. Currently, our company focuses on buildings (ISIC Division 41), civil works (ISIC Division 42) and specialized activities (ISIC Division 43).
Construction entities must comply with the National Building Regulations, approved by Supreme Decree No. 011-2006-VIVIENDA (Reglamento Nacional de Edificaciones), which establishes that urban allotments and buildings must be developed in compliance with the rules governing safety, functionality, accessibility, habitability and environmental impact. According to Technical Regulation No. G.030 (Rights and Responsibilities) of the National Building Regulations, construction companies, such as Cumbra Peru and Cumbra Ingeniería, are responsible for (i) executing works in accordance with project specifications and applicable regulations; (ii) possessing sufficient organization and infrastructure to guarantee the feasibility of the project; (iii) appointing the party responsible for the construction to assume its technical representation; (iv) providing the resources and materials to complete the project pursuant to the terms of the agreement and required standards and within the approved budget; (v) executing subcontracts within contractual limitations; and (vi) delivering to the client documented information regarding the executed works.
Notwithstanding any legal actions that the construction company may take against suppliers, manufacturers or subcontractors, the construction company may be responsible for all the works, including those executed by subcontractors, and for the use of defective materials or supplies.
Penalties for violating the National Building Regulation are determined by the municipal government in the jurisdiction where the project is developed and set forth in its corresponding regulations. In addition, they may also pursue criminal actions or civil claims if applicable.
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Safety Regulation in Construction Projects
The Law on Safety and Health at Work (Law No. 29783) is intended to promote workplace accident prevention and applies to all business sectors. The principal safety rules applicable to construction projects include the following:
| ● | companies with 20 or more employees must establish a committee for the promotion of workplace safety and health that oversees the implementation of the required internal safety and health regulation policy; |
| ● | all projects must have a safety and health plan consisting of all the technical and administrative mechanisms to guarantee the physical integrity and health of workers and third parties during project execution; |
| ● | companies shall hire an occupational physician and establish an area of occupational medicine; |
| ● | companies shall perform periodic audits to verify whether internal safety and health regulations are in accordance with law; |
| ● | occupational diseases and work accidents detected during project execution must be recorded and the competent authority must be notified in accordance with the Regulations of the Law on Safety and Health at Work, approved by Supreme Decree No. 005-2012-TR, and with Occupational Health Manual, approved by Ministerial Resolution No. 510-2005-MINSA; |
| ● | companies must provide for medical examinations of its employees prior to, during and at the termination of their employment (subject to certain terms and conditions depending on whether the employees were engaged in high-risk activities); |
| ● | companies must show a safety and health plan; an index of frequency; and our company’s performance in safety and health in order to be awarded public and private projects; |
| ● | use of individual protective equipment, including gloves, safety goggles, boots and helmets, is mandatory when risks to safety and health cannot be prevented by other means; and |
| ● | personnel responsible for safety must comply with all requirements in Rule NTP 399.010.1 for fire prevention. |
The Peruvian Ministry of Labor and Employment Promotion, the Peruvian Superintendence of Labor Inspection (the “SUNAFIL”) and the Peruvian Ministry of Health are the competent organisms in the safety and health fields, respectively.
Safety Regulations Applicable to Subsectors
In addition to the Law on Safety and Health at Work applicable to all our business sectors, our E&C segment must also comply with the regulations set forth below.
Power and Utilities
Cumbra Peru must comply with the Rules of Safety and Health at Work with Electricity, approved by Ministerial Resolution No. 111-2013-MEM-DM, for its activities relating to the construction of hydroelectric plants, transmission lines and substations. The Peruvian Supervisory Agency for Investment in Energy and Mining (Organismo Supervisor de la Inversión en Energía y Minería, or “OSINERGMIN”) is the authority responsible for supervising and enforcing compliance of the foregoing rules. The most relevant of the safety rules with which Cumbra Peru must comply include: (i) providing employees with necessary information regarding safety measures related to the tasks they perform; (ii) providing employees with adequate safety equipment; and (iii) evaluating and remedying potential sources of danger.
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Mining
Cumbra Peru must comply with the Mining Occupational Health and Safety Regulation, approved by Supreme Decree No. 024-2016-EM, and other related regulations for their mining-related construction activities including the construction of mineral processing plants and other mining-related buildings, among others. In developing mining projects, our subsidiaries’ personnel must follow the safety programs and be familiar with internal rules from their mining sector client. The SUNAFIL and OSINERGMIN are the Peruvian authorities responsible for supervising and enforcing compliance of the foregoing rules. The most relevant of the safety rules with which Cumbra Peru must comply include: (i) creating an internal safety and health regulation policy and selecting a manager responsible for its implementation; (ii) monitoring and recording workplace accidents and occupational diseases; (iii) providing information to employees regarding the safety risks related to their work; (iv) providing employees necessary first aid and medical attention in the event of a workplace accident; (v) providing employees the necessary tools, equipment or materials to perform their activities safely; and (vi) evaluating risks in order to establish accident prevention and mitigation plans.
Oil and Gas
UNNA Energía must comply with the Hydrocarbons Safety Regulations, as approved by Supreme Decree No. 043-2007-EM, which are enforced by OSINERGMIN, while performing any hydrocarbon activities. The most relevant safety rules with which UNNA Energía must comply include: (i) assuring that senior project managers are responsible for the safety and health of workers; (ii) assigning specialized personnel responsible for safety and health matters; and (iii) monitoring and recording workplace accidents monthly.
Industrial Construction
Cumbra Peru must comply with the Industrial Safety Regulation, approved by Supreme Decree No. 42-F (Reglamento de Seguridad Industrial), for its activities relating to the construction of industrial plants. The most relevant of the safety rules with which Cumbra Peru must comply include: (i) overseeing that worksites are constructed, equipped and managed to provide security and protection to employees; (ii) instructing employees about risks to which they are exposed related to their work and adopting necessary measures to avoid accidents and damage to employee health; and (iii) overseeing inspections to verify the proper installation of safety equipment.
Registries and Permits
Pursuant to Supreme Decree No. 005-2020-TR civil contractors must be registered in the National Registry of Civil Construction Works (the “RENOCC”), governed by the Administrative Labor Authority. Civil construction work companies register with the RENOCC, which assigns them with a unique registration number with which the company is identified until completion of the relevant project, regardless of the number of contractors and subcontractors that participate in the execution of the work. Cumbra Peru has registered in the National Civil Construction Contractors and Subcontractor Registry in compliance with the Supreme Decree No. 008-2013-TR (previous regulations, then repealed by Supreme Decree No. 005-2020-TR).
According to Supreme Decree No. 005-2008-EM mining contractors must register with the National Mining Contractors and Specialized Companies Registry. Cumbra Peru is currently registered. Proper registration requires the filing of a request with the Regional Agency of Energy and Mines with jurisdiction in the area where the mining activities will take place. In addition, within five days upon commencement of construction, Cumbra Peru must provide in writing its employees with the following information: (i) the company’s legal name; (ii) the scope of the contract; (iii) the place of execution; (iv) the applicable health and safety regulations; (v) the Safe Work Written Procedures (PETS); and (vi) risk insurance policies.
Labor Law Requirements in Civil Construction
Labor law requirements in civil construction consist of the specific legal framework for civil construction workers and the general legal framework applicable to the administrative personnel in the civil construction sector set forth in the Single Revised Text of the Labor Productivity and Competitiveness Law, approved by Supreme Decree No. 003-97-TR.
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Seasonality of services is one of the main features in the specific legal framework due to the temporary nature of construction contracts. Consequently, certain general rules such as the trial period are not applicable to construction workers.
The principal terms and conditions relating to collective bargaining from our civil construction workers have been agreed upon and recorded in the 2023-2024 agreement, dated September 06, 2013, and entered into between the Peruvian Chamber of Construction and the Federation of Civil Construction Workers (Federación de Trabajadores en Construcción Civil). By means of the 2023-2024 agreement, the parties have, among other things, agreed on an increase in the daily wage of such employees.
Supreme Decree No. 009-97-SA, Law No. 26-790 and Supreme Decree No. 003-98-SA require construction companies to have complementary high-risk insurance for workers that perform high risk tasks. As of the date of this annual report, Cumbra Peru has this insurance coverage.
The insurance coverage provides medical care for injured workers to allow them to achieve full recovery. Moreover, it provides pensions to workers or their beneficiaries in case the worker becomes handicapped or dies as a result of a work accident or occupational disease.
Environmental Regulations
Section 24 of the General Environmental Law, approved by Law No. 28-611 (the “General Environmental Law”), provides that all human activity that involves construction services, among others, likely to cause significant environmental impact is subject of regulation by the National System of Environmental Impact Assessment. The Peruvian Ministry of the Environment, through the Environmental Supervising and Enforcement Agency (Organismo de Evaluación y Supervisión Ambiental, or “OEFA”) supervises compliance with the law and enforces environmental rules related to mining, oil and gas and electricity.
In addition to being responsible for the impact that its activities, by action or omission, may have on the environment, Cumbra Peru is also subject to an environmental impact assessment and must obtain an environmental certification necessary to obtain project permits or licenses. Cumbra Peru must also adopt measures for the management of hazardous materials intrinsic to its activities to mitigate the negative environmental impact its activities may have.
Civil Construction
Supreme Decree No. 015-2012-VIVIENDA (modified by the Supreme Decree No. 019-2014-VIVIENDA and Supreme Decree No. 008-2016-VIVIENDA) regulates the environmental aspects of projects related to housing, urbanism, construction and sanitation activities in urban or rural areas. The National Directorate of Housing, Urbanism, Construction and Sanitation supervises the compliance and enforces the applicable rules. Projects are categorized according to their environmental impact during and after their execution and different rules are established for each category including compliance with the following environmental studies prior to starting construction works: (i) projects expected to cause minor environmental impacts require an environmental impact statement; (ii) projects expected to cause moderate environmental impacts require a semi-detailed environmental impact assessment; and (iii) projects expected to cause a major environmental impact require a detailed environmental impact assessment.
Other Subsectors
Depending on the subsector in which it operates, Cumbra Peru is required to follow specific environmental provisions issued by the competent authorities. For example, with respect to hydrocarbon activities, the Ministry of Energy and Mines has enacted the Oil and Gas Environmental Regulations, by means of Supreme Decree No. 039-2014-EM modified by Supreme Decree No. 023-2018-EM.
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Tax Legal Regime Applicable to Construction
Section 63 of the Peruvian Income Tax Expense Law, approved by Supreme Decree No. 179-2004-EF, establishes that construction companies engaged in construction contracts for a period longer than one fiscal year can choose to be taxed under any of the following systems:
| ● | allocate to each fiscal year the gross income resulting from applying the percentage of gross margin estimated for the full construction over the amounts collected for the same construction; or |
| ● | allocate to each fiscal year the gross income calculated by deducting the costs corresponding to the tasks performed on each construction during that year from the amount collected or that is expected to be collected for such tasks. |
In both situations, a special accounting registry must be kept for each project, which is meant to keep a record of the costs, expenses, and income of each project in an account separate from the general analytical accounts (cuentas analíticas de gestión).
Until December 31, 2012, construction companies could defer revenues related to each individual project until the total completion of the project, provided the project was completed in three years or less. In such cases, the income was to be recognized in the fiscal year in which the project concluded or was delivered. In case the project was scheduled to conclude in a period exceeding three years, the results would be determined in the third year in accordance with the progress of the works over the three-year period. Beginning in the fourth year, results were determined following the foregoing methods.
Starting on January 1, 2013, in accordance with Legislative Decree No. 1112, which amended the Peruvian Income Tax Expense Law, construction companies that adopted the deferral method are authorized to continue with the use of such method only with respect to income arising from the execution of work contracts initiated prior to January 1, 2013, until their completion, and for execution of work contracts initiated on or after January 1, 2013 the deferral method is no longer accepted.
The Peruvian Income Tax Expense Law also provides that the difference that may result from a comparison between the real gross income and the income assessed pursuant to any of the methods described above shall be allocated to the fiscal year in which the work concluded. Additionally, the company must apply the same system to all its construction contracts and must receive prior authorization from tax authorities to change the applied system.
Prevention of Money Laundering and Financing of Terrorism
Regulations for money laundering and terrorism financing prevention, approved by SBS Resolution No. 789-2018 (which has replaced SBS Resolution No. 486-2008 as of March 15, 2018), require construction and real estate companies to implement a money laundering and terrorism financing prevention system, including, among others, the appointment of a compliance officer, setting up a registry of operations and notifying the Financial Intelligence Unit of the SBS, the entity responsible for supervising and enforcing compliance, of any suspicious activity.
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C. Organizational Structure
The following organizational chart sets forth our principal operating subsidiaries within our four reportable segments.
| (1) | In June 2018, the Company assigned economic rights over 48.8% of the share capital of Norvial to Inversiones en Autopistas S.A. by transferring its Class B shares of Norvial. The Company continues to possess 67% of the voting rights of Norvial and an economic interest of 18.2% of Norvial’s share capital. JJC Contratistas Generales S.A. owns 16.8% and Inversiones en Infraestructura Peru S.A.C. owns 16.2%. |
| (2) | 43.3% of the share capital of Viva was held by our subsidiary Cumbra Peru. However, in December 2022, Cumbra Peru transferred all of its Viva shares to AENZA. |
| (3) | 89.41% of Cumbra Ingenieria shares have been assigned as collateral formed to the benefit of the Peruvian state to secure AENZA’s contingent obligation to pay compensation resulting from the investigations of the Company by the Peruvian state. |
If the Corporate Reorganization approved by our General Shareholders’ Meeting on February 7, 2024 proceeds as approved, the ownership structure and corporate structure is expected to be updated pursuant to the Corporate Reorganization. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Key Developments—Corporate Reorganization.”
Infrastructure:
| ● | Toll Roads: |
| ● | Norvial, incorporated in Peru, is the concessionaire of the 183 km stretch between Ancón and Pativilca of the Panamerican Highway. Norvial is comprised of common shares (Class A), and non-voting shares (Class B). In June 2018, the company transferred economic rights over 48.8% of the share capital of Norvial to Inversiones en Autopistas S.A. by transferring its Class B shares. The company continues to possess 67% of voting rights of Norvial and an economic interest of 18.2% in Norvial’s share capital. JJC Contratistas Generales S.A. owns 16.80% and Inversiones en Infraestructura Peru SAC owns 16.20%. |
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| ● | Survial, incorporated in Peru, is the concessionaire of the 758 km highway between Marcona and Urcos in Peru. AENZA owns 99.995% of Survial, and the remaining 0.005% is held by UNNA Transporte. |
| ● | Canchaque, incorporated in Peru, is the concessionaire of the 78 km highway between the towns of Buenos Aires and Canchaque in Peru. AENZA owns 99.96% of Canchaque, and the remaining 0.04% is held by UNNA Transporte. |
| ● | UNNA Transporte, incorporated in Peru, is engaged in the operation and maintenance of infrastructure assets. AENZA owns 99.9983% of UNNA Transporte and the remaining 0.0017% is held by Cumbra Peru. |
| ● | Mass Transit: |
| ● | Línea 1, incorporated in Peru, is the concessionaire of Line 1 of the Lima Metro. AENZA owns 75% of Línea 1; the other 25% is held by Ferrovías Participaciones S.A., a railway infrastructure company. |
| ● | Water Treatment: |
| ● | La Chira, incorporated in Peru, is the concessionaire of La Chira waste water treatment plant in southern Lima, Peru. AENZA owns 50% of La Chira; the other 50% is held by Acciona Agua S.A., an affiliate of a waste water treatment and distribution company. |
Energy:
| ● | UNNA Energía, incorporated in Peru, is engaged in the oil and gas business and sales crude oil to Petroperu, a Peruvian state oil company; owns a gas processing plant; and, through a joint operation with a Peruvian affiliate of Oiltanking GmbH, operates five fuel terminals in Peru. AENZA owns 95% of UNNA Energía; the remaining 5% is held by a former company executive. |
Real Estate:
| ● | Viva, incorporated in Peru, is focused on the development and sale of affordable housing and housing, as well as other real estate projects such as shopping centers and land sales. AENZA directly owns 99.54% of Viva and the other 0.46% is owned by a company executive. |
E&C:
| ● | Cumbra Peru, incorporated in Peru, is one of the oldest and largest construction companies in Peru. AENZA owns 99.53% of Cumbra Peru; the remaining 0.47% is held by former and current company senior managers. | |
| ● | Vial y Vives—DSD S.A. (“Vial y Vives—DSD”), incorporated in Chile, is an engineering and construction company specialized in the mining sector and in providing services to the mining, energy, oil and gas, and cellulose sector. Cumbra Peru owns 99.16% of Vial y Vives—DSD; and the remaining 0.84% is held by third parties. | |
| ● | Cumbra Ingeniería, incorporated in Peru, is primarily engaged in engineering consultancy for projects in the mining, hydrocarbons, electrical, agricultural, industrial, tourism and transportation sectors. AENZA owns 89.41% of Cumbra Ingeniería (66.6% of Cumbra Ingeniería’s shares have been assigned to a trust created in benefit of the Peruvian state to secure the company’s contingent obligation to pay compensation to the Peruvian state in respect of investigations of the company by the Peruvian state), and the remaining 10.59% is distributed among former company senior managers (5.27%) and successors thereof (5.32%). | |
| ● | Morelco, incorporated in Colombia, is a recognized specialist in electromechanical assemblies, civil works, and services for the oil and gas and other energy sectors. Our subsidiary Cumbra Peru owns 100.0% of Morelco. | |
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D. Property, Plant and Equipment
87.87% of our assets are located in Peru, with the remaining balance located in Chile and Colombia. As of December 31, 2023, the net book value of the assets of the company was S/307.2 million (US$82.7 million). We currently lease certain machinery and equipment from vendors. The terms of our leasing contracts range from two to five years, depending on the nature of the equipment. Leased machinery and equipment are capitalized for accounting purposes. Our principal executive offices, which we lease, are located at Av. Petit Thouars 4957, Miraflores, Lima, Peru.
Insurance and Contingency Planning
We have insurance coverage for fire, earthquakes, strike, riot, malicious damage, vandalism and terrorism; losses or damages to construction machinery and equipment; destruction or disappearance of property; civil liability, including physical harm to third parties; professional liability; transportation; vehicle theft, collision, rollover, fire and accidents; and directors’ and officers’ liability. Additionally, we carry different policies for specific risks related to our operating segments. Our management considers this coverage to be sufficient to cover probable losses and damages, taking into consideration the nature of our activities, the risks involved in our transactions and the advice of our insurance brokers.
We also have contingency plans in place in order to protect our company and the interests of our clients. In the event of an emergency, we have procedures in place designed to minimize any resulting interruption in service to our most critical business processes.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with our consolidated financial statements included in this annual report, which have been prepared in accordance with IFRS issued by the IASB. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of several factors, including, without limitation, those set forth under “Part I. Introduction. Forward-Looking Statements” and “Item 3.D. Key Information—Risk Factors.”
A. Operating Results
Overview
We have a diversified portfolio of business units that includes an infrastructure management and development platform, one of the top oil and gas companies in Peru, one of largest real estate developers in the affordable housing market in Peru, and the largest engineering and construction company in Peru with an additional presence in Chile and Colombia. With more than 90 years of operations, we have a long track record of successfully completing the engineering and construction of many of Peru’s landmark private- and public-sector infrastructure projects, such as the Lima International Airport and the Peru liquid natural gas liquefaction plant, and we believe we have a track record of operational excellence in our markets. We have developed a highly experienced management team, a talented pool of more than 1,400 engineers and a skilled work force that share our core corporate values of quality, professionalism, reliability and efficiency.
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Key Developments
GSP Liquidation
On January 8, 2024, after INDECOPI’s declaration that the liquidation agreement of GSP was null and void pursuant to Resolution No. 4069-2023/CCO-INDECOPI, and the failure to approve a new agreement within the legal term, the creditor committee ordered the dissolution and liquidation of GSP. See “Item 3.D. Key Information—Risk Factors—Risks Related to Key Developments—There is uncertainty with regard to the amount, timing, and manner in which the payment for the termination of the GSP gas pipeline concession will be paid.”
Investigations and Settlement Processes
Our company and some of our subsidiaries, and some of our former directors and senior managers, have been charged in connection with criminal and civil investigations relating to certain projects in connection with our association with Odebrecht and in connection with our alleged participation in the alleged “construction club” during the period from 2004 to 2016.
In 2018, the Peruvian criminal prosecutor charged our company and Cumbra Peru, as criminal defendants in connection with the IIRSA South (tranche II) project conseccion, and the Peruvian First National Preparatory Investigation Court (Primer Juzgado de Investigación Preparatoria Nacional) included our company and Cumbra Peru in its criminal investigation. Additionally, in December 2018, the Peruvian First National Preparatory Investigation Court also resolved to include our company and Cumbra Peru as civilly liable third parties in the investigations related to the IIRSA South (tranche II) project concession and Cumbra Peru as a civilly liable third party in the investigations related to Tranches 1 and 2 of the Lima Metro.
In December 2018, Cumbra Peru was formally included as a civilly responsible third party, along with eleven other construction companies, in the criminal investigation conducted by a Peruvian public prosecutor with respect to an alleged “construction club” that colluded to receive public contracts. In October 2021, the prosecutor filed a motion to criminally charge Cumbra Peru and another of our subsidiaries, UNNA Transporte, and other companies in the construction sector in Peru, as well as a former director and former senior managers of our company, with collusion and other alleged crimes.
Additionally, Peruvian prosecutors have included José Graña Miró Quesada, the former Chairman of our company, and Hernando Graña Acuña, a former board member of our company and former chairman of Cumbra Peru, in an investigation for the crimes of collusion and money laundering against the Peruvian government, respectively, each in connection with the IIRSA South (tranche II) project concession, in which we participated with Odebrecht. Gonzalo Ferraro Rey, the former Chief Infrastructure Officer of our company, has also been included in an investigation for the crime of money laundering in connection with the same project. In addition, José Graña Miró Quesada, Hernando Graña Acuña and Juan Manuel Lambarri, the former chief executive officer of Cumbra Peru, have been charged in connection with Tranches 1 and 2 of the Lima Metro. On February 9, 2022, the Peruvian press reported that Peruvian prosecutorial authorities entered into the plea agreements with José Graña Miró Quesada and Hernando Graña Acuña. On January 3, 2023 and January 18, 2023, the plea agreements with José Graña Miró Quesada and Hernando Graña Acuña, respectively, received judicial approval. The plea agreements are confidential under Peruvian law and, therefore, we do not know their content. However, such agreements may include information related to wrongdoing or knowledge of improper behavior while José Graña Miró Quesada and Hernando Graña Acuña were at the Company.
We understand that Peruvian prosecutors had initiated an investigation with respect to the Chavimochic project. Since neither the Company nor any of its affiliates or personnel were subject to investigation and therefore, we have limited information. However, the Chavimochic investigation was subsequently closed in connection with the Company without any further action. The project has not been operational since 2017 and the concession agreement has been terminated, as a result of an arbitral award notified to the concessionaire in October 2023. The arbitral award determined joint liability from both the concessionaire and the Peruvian government in connection with defaults to the concession agreement, as well as the termination of the concession. The arbitral award granted a termination payment in favor of the concessionaire (with respect to which AENZA holds a 26.5% minority stake) equal to US$25,307,438 plus interest, while also authorizing the grantor (Ministry of Agricultural Development) to draw 70% of the performance bond, equal to US$25,060,000, plus interest. As of December 31, 2023, we recognized a financial debt in the amount of US$ 7.9 million as a result of the performance bond granted to secure Chavimochic’s obligations under the concession agreement.
With the Final Agreement on Settlement and Cooperation in force, all of our criminal investigations in connection with our past partnerships with Odebrecht have concluded.
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Final Agreement on Settlement and Cooperation (Acta de Acuerdo Final de Colaboración y Beneficios)
On May 21, 2021, the Company entered into a Preliminary collaboration and benefits agreement with a special team of Peruvian prosecutors covering the investigations related to corruption offenses of officials and related personnel, in which the Company, Odebrecht and others would have incurred (the “Prosecutor’s Office”), and with the ad hoc Public Prosecutor’s Office for investigations and processes related to crimes related to corruption of officials, money laundering and related activities (the “Attorney General’s Office”) allegedly committed by the Odebrecht company and others.
On September 15, 2022, the Final Agreement on Settlement and Cooperation was entered into between the Peruvian Public Prosecutor’s Office, the Attorney General’s Office and the Company, whereby AENZA accepted that they were utilized by certain former executives to commit illicit acts in a series of periods until 2016, and committed to pay a civil compensation to the Peruvian Government of S/488.9 million (S/ 333.3 million and US$ 40.7 million) calculated according to the formula established by Law No. 30737. The agreement was ratified (homologado) by judgment dated August 11, 2023, and entered into force with its consent, which was notified to AENZA on December 11, 2023.
According to the Final Agreement on Settlement and Cooperation, the payment of the civil compensation shall be made within twelve years at a legal interest rate in soles and dollars (3.55% and 1.9% annual interest as of December 31, 2023, respectively). The Company also undertakes to establish a series of guarantees after the court’s approval of the Final Agreement on Settlement and Cooperation (which took place on August 22, 2023 and by which the judge verified that such agreement is in accordance with the law), consisting of (i) two trust agreements that include shares issued by Cumbra Ingeniería S.A.; (ii) a trust on a property owned by the Company; and (iii) a guarantee account with funds equivalent to the annual installment for the following year. Among other conditions, the Final Agreement on Settlement and Cooperation includes a restriction for AENZA and its subsidiaries Cumbra Peru and Unna Transporte from participating in new public infrastructure, construction and road maintenance contracts for two years from the date of the court’s approval of the agreement. The other member companies of AENZA’s economic group are not subject to any restriction or prohibition to contract with the Peruvian Government.
On December 27, 2023, the initial installment of the civil compensation was paid to the Peruvian Government for S/10.3 million and US$1.2 million. As of December 31, 2023, the Company maintains in its financial statements the total liability associated to the Final Agreement on Settlement and Cooperation for an amount of S/469.8 million (S/323 million and US$39.5 million).
We have already filed a request to the Ministry of Justice, soliciting Aenza and Cumbra Peru’s exclusion from List 2 of Law No. 30737 (“List 2”), which sets forth certain restrictions against companies included in such public list. This request (which has also been replicated by the Prosecutor’s Office) is consistent with the terms of the Final Agreement on Settlement and Cooperation, which expressly provides our exclusion from the application of Law No. 30737. We expect that the Ministry of Justice will exclude us and Cumbra Peru from List 2 shortly, once pending documentation requested by such entity is delivered by the Prosecutor’s Office.
Administrative Process in Relation to the Construction Club
On July 11, 2017, INDECOPI initiated an investigation against several Peruvian construction companies (including Cumbra Peru), about the existence of an alleged cartel called the Construction Club.
On February 11, 2020, our subsidiary Cumbra Peru was notified by the Technical Secretariat of INDECOPI’s Free Competition Defense Commission (the “Commission”) with a resolution announcing a sanctioning administrative procedure involving a total of 35 companies and 28 natural persons, for alleged anticompetitive conduct in the market of public works.
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On March 9, 2021, Cumbra Peru was notified with the Final Instruction Report prepared by the Technical Secretariat of the Commission, in connection the administrative sanctioning procedure against 33 construction companies and 26 of their executives for having adopted a coordination system through which they agreed to share several bids called by Provias Nacional and other entities of the Peruvian state. On November 15, 2021, the Commission issued Resolution No. 080-021-CLC-INDECOPI, which resolved to sanction in first administrative instance the above mentioned companies and their executives, including Cumbra Peru. On December 9, 2021, Cumbra Peru filed an appeal against the referred resolution, suspending any execution of the resolution, including the payment of the fine imposed and the compliance with the corrective measures ordered. As of December 31, 2023, the Company maintains a provision that was recognized amounting to S/56.4 million (S/52.4 million as of December 31, 2022).
Investigations and Administrative Proceeding initiated by INDECOPI for Anti-Competitive Practices in the Labor Market in the Construction Sector
On February 7, 2022, Cumbra Peru and UNNA Transporte were notified pursuant to INDECOPI Resolution No. 038-2021/DLC-INDECOPI dated December 28, 2021, that the antitrust authority initiated a sanctioning administrative procedure for alleged illicit practices in the labor market during the period from 2011 to 2017.
On April 7, 2022, Cumbra Peru and UNNA Transporte submitted a proposal for a cease and desist agreement for the early termination of the administrative sanctioning procedure, in which they (i) acknowledged the alleged conduct, (ii) committed to maintain during 2022, 2023 and 2024, a compliance program with free competition rules, and (iii) agreed to pay S/2.7 million in two installments (one after 60 days and the second after 12 months). Pursuant to Resolution No. 054-2022/CLC-INDECOPI dated August 19, 2022, the Commission approved the proposed cease and desist commitment and concluded the sanctioning procedure. As of December 31, 2022, the Company estimated a provision amounting to S/1.4 million related to this proceeding.
Following the established schedule, the subsidiaries have already paid the total amount of the compensation. Likewise, the subsidiaries are complying with their commitment to maintain a compliance program, with supervision of INDECOPI.
On May 9, 2023, our subsidiaries Cumbra Peru and Unna Transporte were notified by INDECOPI, with Resolution No. 052-2023/CLC-INDECOPI, which formally concludes the administrative sanctioning procedure in first instance for alleged illicit practices in the labor market during the period from 2011 to 2017.
This administrative investigation was settled and we have already paid a reduced fine, which was provisioned for on our balance sheet.
Termination of Chavimochic Concession – Arbitration Proceeding
In May 2014, Concesionaria Chavimochic S.A.C. (the “Concessionaire”), in which AENZA has a 26.5% interest, entered into a concession agreement with the Peruvian government for the design, construction, operation, and maintenance of major hydraulic works of Chavimochic Project (the “Project”). The construction of the Project started in 2015 with a concession term of twenty-five (25) years and a total investment of US$647 million.
According to the concession agreement, the works of the third stage of the Project were structured in two phases. To date, the works of the first phase (Palo Redondo Dam) are 70% complete. However, at the beginning of 2017, the procedure for early termination of the concession agreement was initiated due to a breach of contract by the Peruvian government as grantor (the “Grantor”), and all activities were suspended in December 2017. Since the parties did not reach an arrangement, the Concessionaire initiated an arbitration process before the United Nations Commission on International Trade Law (UNCITRAL).
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On October 4, 2022, the UNCITRAL notified the parties of its decision, which provided for the early termination of the concession agreement and ordered, among other things, (i) that the Grantor should pay the Concessionaire an amount of US$25.3 million as a consequence of its failure to provide the project control delivery, and (ii) either the execution of 70% of the Concessionaire’s performance bond or the payment of US$25 million, as a result of the Concessionaire’s failure to obtain evidence of financial closing.
In February 2023, the Grantor partially executed the Concessionaire’s performance bond, where AENZA was required to assume a total of US$ 7.5 million. As of the date of this annual report, the Grantor requested the execution of the balance of the Concessionaire’s performance bond, where AENZA is responsible for US$ 1.4 million. The Concessionaire is currently coordinating the necessary legal actions for the full execution of the award so that the Grantor complies with the obligations arising therefrom. As of December 31, 2023, we recognized a financial debt in the amount of US$ 7.9 million as a result of the performance bond granted to secure Chavimochic’s obligations under the concession agreement. Likewise, the Concessionaire will initiate legal actions against the Grantor for what it considers an arbitrary execution of the balance of the performance bond without the arbitration court having granted the possibility of executing the bond for a higher amount and without a breach of contract having been attributed to the Concessionaire that would justify such performance.
Tender Offer by IG4
On June 15, 2021, IG4 Capital announced a tender offer for a total of 107,198,601 common shares equivalent to 12.29% of our outstanding shares. On August 10, 2021, IG4 Capital purchased a significant shareholding participation amounting to 23.90% of the total outstanding shares, of which 12.29% was purchased within the tender offer and an additional 11.61% was acquired in transactions outside the tender offer. Furthermore, on August 12, 2021, certain shareholders of AENZA signed a trust agreement with IG4 Capital, as trustee, and La Fiduciaria S.A., in which, among other aspects, IG4 Capital acquired the voting rights of common shares representing an additional 8.97% of the company for a period of eight years, which could be automatically renewed for an additional period of eight years. As of December 2023, IG4 Capital owns 28.77% of our capital stock, which includes (i) 18.52% of our capital stock held directly, (ii) voting rights to the 4.47% and 3.91% of our capital stock held by GH Holding Group and La Fiduciaria – FID IG4, respectively, and (iii) voting rights to an additional 1.87% of our capital stock pursuant to certain agreements between IG4 Capital and certain other shareholders.
CEO and Board of Directors
The Board of Directors was elected for the period 2021-2024 at the general shareholders’ meeting held on September 20, 2021. In addition, on October 1, 2021, we appointed a new CEO, Mr. Andre Mastrobuono. For more information, see “Item 6. Directors, Senior Management and Employees.”
Strengthening of Anti-Corruption Program
In 2017, the company’s Board of Directors created the Risk & Compliance Committee and the Corporate Risk and Compliance Function reporting directly to the Board of Directors. The Board of Directors also provided this corporate function with additional resources, such that the Corporate Risk and Compliance function currently includes six experienced officers.
The Risk & Compliance Committee approved a plan and resources to continue strengthening our anticorruption compliance program, an integral part of our larger Corporate Risk and Compliance Program. The plan focused on cultural changes and four strategic elements to re-shape the way we do business: (i) corporate governance, (ii) ethics and compliance, (iii) risk management, and (iv) regulatory compliance and monitoring.
In parallel, the Board of Directors launched an integrity manifesto and conducted an internal investigation, led by U.S. counsel with the assistance of forensic accountants, with respect to our participation in consortia with Odebrecht. The Board of Directors also engaged international advisors and consulting firms that provided specialized anti-corruption training to the Board of Directors, senior management and middle management. These actions served as the foundation for a cultural change; the strengthening of governance; the enhancement of the tone at the top; and the transformation and enhancement of anti-corruption practices across the Group.
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In 2018, we re-launched key aspects of the Corporate Risk and Compliance Program focused on ethics and anti-corruption compliance. The first accomplishment was the approval, implementation, and training of the company’s new Code of Business Conduct, which was rewritten by senior management. Another key achievement was the whistleblower mechanism, which we re-vamped and re-launched. Together with the business operations functions, we also reviewed and modernized our policy on third party due diligence (focused on anti-corruption, crime prevention and international sanctions), which included building a robust process using international best practices and modern web-based tools for name search and case management.
Risk was the program’s focus in 2019, while we continued to implement other aspects of the program. The Board of Directors formalized the company’s risk management methodology and risk appetite and approved the risk manual. Business operations redesigned key business processes and developed risk matrices, guided by the professional opinion of business line experts, as an additional foundation for a modern risk management function. This included the use of an enhanced method to measure and mitigate corruption risk. In 2019, the company also introduced revised policies on donations, gifts and entertainment, on dealing with conflicts of interests and on managing relationships with government officials.
In 2020, we applied the Corporate Risk and Compliance Program to identify, prioritize and mitigate certain impacts of the COVID-19 pandemic, including corruption and regulatory-related risks. We also developed a risk analysis on free competition, and we issued our antitrust policy, a key enhancement to our Regulatory Compliance Program.
An independent consulting firm performed in 2020 a specialized review of our Anti-corruption Compliance Program. Their review identified no material weaknesses and concluded that our program was suited for the nature of our businesses, needs, risks and characteristics. In that year, three of our subsidiaries achieved ISO 37001 Certification (Cumbra Peru, Ecotec and Morelco).
In 2021, we strengthened our Regulatory Compliance Program, enhanced the risk assessment and monitoring models behind our Third Party Due Diligence Program, and innovated and updated our training means and content based on risk and related to ethical conduct and values aligned with our business code of conduct.
Strengthening the Culture of Integrity was the focus of the program in 2022, as we continue to improve other programs. The Board of Directors formalized the organization’s compliance processes and the new structure of the compliance area focused on business lines and processes. Likewise, the company also updated policies and procedures on ethics, due diligence, donations, gifts, entertainment, the management of conflicts of interest, and the management of relationships with government officials. We also strengthened the training plan, extending it to the engineers in the organization.
An independent consulting firm conducted a specialized review of our Anti-Corruption Compliance Program in 2022. Their revision identified no material weaknesses and concluded that our program aligned with the requirements of the applicable anti-corruption regulations. In 2022, all subsidiaries of Cumbra Peru, our engineering and construction business lines in the region (Peru, Chile, and Colombia), achieved ISO 37001 certification.
In 2023, our program was strengthened since the Peruvian regulations included new types of corruption offenses. These new types of crruption offenses were included in our 2023 training program for all staff and engineers in the organization. Moreover, our due diligence program was also strengthened highlighting a risk-based approach. Additionally, during 2023 we obtained the ISO 37001 certification for Unna Energía and updated the certification for Aenza, Cumbra Peru and Unna Infraestructura.
Convertible Bonds
On August 13, 2021, AENZA issued Convertible Bonds in a total principal amount of US$89.9 million. The Convertible Bonds matured in February 2024, beared interest at a rate of 8%, and were payable quarterly. The Convertible Bonds were convertible into shares as of the sixth month from the date of issuance. In accordance with the terms and conditions of the Convertible Bonds, holders of Convertible Bonds in a principal amount equivalent to US$11 million exercised their conversion rights and on February 28, 2022 we issued 37,801,073 new common shares. Additionally, holders of Convertible Bonds in a principal amount equivalent to US$78.9 million exercised their conversion rights and, on March 31, 2022, we issued an additional 287,261,051 new common shares. After these conversions, the Convertible Bonds were fully cancelled.
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Bridge Loan
On March 17, 2022, the Company entered into a bridge loan agreement for up to US$ 120 million (S/ 445.6 million), with a group of financial institutions comprised by Banco BTG Pactual S.A. – Cayman Branch, Banco Santander Peru S.A., HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC, and Natixis, New York Branch. The financing was expected to be repaid over a period of 18 months, in quarterly interest installments and is secured, subject to the fulfillment of certain conditions precedent, by a flow trust (first lien), a pledge over the shares in Unna Energia S.A. (first lien), and a trust on the shares of Viva Negocio Inmobiliario S.A.C. (second lien). On October 5, 2023, and December 27, 2023, payments of US$ 8 million (S/29.7 million) and US$ 12 million (S/ 44.6 million), respectively, were made under the bridge loan agreement. In addition, on December 27, 2023, the term extension of the bridge loan agreement was signed for up to US$ 100 million (S/371.1 million) for a period of twelve months payable in quarterly interest installments.
As of December 31, 2023, amounts outstanding under the loan were US$102.3 million (S/379.9 million), comprising principal of US$100.0 million (S/371.3 million), plus interest and net deferred charges of US$2.3 million (S/8.6 million).
Capital Stock Increase
On December 27, 2023, the Company issued 174,984,912 new common shares, at a price per share of S/0.4971, increasing the Company’s capital stock from S/1,196.9 million to S/1,371.9 million The total shares were fully subscribed and paid in two pre-emptive subscription rounds and in the private offering (S/86.9 million or U$23.4 million). A placement loss of S/87.9 million was determined, equivalent to the difference between the nominal value of the new common shares issued and the total amount paid. On February 1, 2024, the capital increase was registered in the Company’s public registry. On February 15, 2024, the 174,984,912 common shares resulting from the capital increase were delivered to their holders.
Corporate Reorganization
On October 19, 2023 and December 27, 2023, the Board of Directors approved a corporate reorganization plan (the “Corporate Reorganization”) and the non-monetary contributions required to execute the Corporate Reorganization Plan, respectively. On February 7, 2024, a general shareholders’ meeting of the Company approved the Corporate Reorganization Plan, which sets forth AENZA’s new corporate structure consisting of two new holding companies: (i) one that will concentrate the engineering and construction businesses, and (ii) another that will hold the infrastructure and energy businesses. Under the new corporate structure, Viva Negocio Inmobiliario S.A.C. will remain as the vehicle through which the real estate development business is conducted.
In this regard, the following in-kind capital contributions were approved to be made:
| ● | Unna Infraestructura S.A.C. would receive the shares owned by the Company in the following subsidiaries: Tren Urbano Lima S.A., Red Vial 5 S.A., Concesionaria La Chira S.A., Inversiones en Autopistas S.A., Carretera Andina del Sur S.A.C., Concesionaria Via Expresa Sur S.A.C., Carretera Sierra Piura S.A.C., Operadores de Infraestructura S.A.C., and Agenera S.A.C. |
| ● | Inversiones Ingeniería y Construccion S.A.C., would receive the shares owned by the Company in the following subsidiaries: Cumbra Peru S.A. and Cumbra Ingeniería S.A. |
| ● | UNNA S.A., would receive the shares owned by the Company in the following subsidiaries: Unna Infraestructura S.A.C. and Unna Energía S.A. |
Additionally, the General Shareholders’ Meeting approved the delegation of powers to the Board of Directors to determine and fix the accounting valuation of the shares that will be the object of the non-monetary contributions, based on a valuation report to be prepared by Larrain Vial within 90 calendar days from February 7, 2024, as well as to determine all other conditions and terms for the realization of the non-monetary contributions.
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We have taken preliminary steps in executing the Corporate Reorganization Plan; however, there are several events and conditions we must satisfy for the reorganization to occur, including the approval of AENZA’s and the involved subsidiaries’ stakeholders and lenders.
Issuance of International Bonds
On April 17, 2024, we launched an offering of new bonds in the international markets in reliance of Rule 144A and Regulation S under the Securities Act. On May 10, 2024, the new bonds were priced for a principal amount of US$210 million and a coupon of 12.000%, and will mature in 2029. We expect to issue the new bonds on May 14, 2024. We expect to use the proceeds of this offering to pay outstanding debt and other corporate purposes.
Internal Control over Financial Reporting
In 2023, we identified material weaknesses regarding our internal control over financial reporting. For more information, see “Item 3. Key Information—D. Risk Factors—We have identified material weaknesses in our internal control over financial reporting related to our information technology IT systems, and if we cannot maintain effective internal controls or provide reliable financial and other information in the future, investors may lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our common shares” and “Item 15. Controls and Procedures.”
Factors Affecting Our Results of Operations
General
Peruvian, Chilean and Colombian Economic Conditions
In 2021, 2022 and 2023, 79.6%, 80.5% and 72.8% of our revenues, respectively, were derived from activities in Peru. Accordingly, our results of operations are substantially affected by economic conditions in the country and our growth is driven in significant part by growth in the Peruvian economy. In addition, 16.9%, 16.1%, and 13.0% of our revenues in 2021, 2022 and 2023, respectively, were derived from activities in Chile and 3.5%, 3.4%, and 14.2% of our revenues in 2021, 2022 and 2023, respectively, were derived from activities in Colombia.
Peruvian real GDP increased 13.6% in 2021 and 2.7% in 2022, and decreased 0.6% in 2023. As a result of the COVID-19 pandemic and the measures taken by governments, private consumption increased at an average annual rate of 2.0% in real terms from 2020 to 2022 and increased at an average annual rate of 0.1% in real terms from 2022 to 2023. Private investment increased 37.4% in 2021, and decreased 0.4% in 2022 and 0.1% in 2023, each in real terms. Inflation in Peru, as measured by the change in the consumer price index, was 6.4% in 2021, 8.5% in 2022, and 3.2% in 2023. The Sol depreciated versus the U.S. dollar by 10.5% in 2021, and appreciated by 4.5% in 2022 and by 2.8% in 2023. Peru’s sovereign debt has been rated investment grade by S&P, Fitch and Moody’s. As the social and political crisis evolved, in October and December 2022 and January 2023, Fitch, Standard & Poor’s and Moody’s, respectively, changed their outlook for Perú’s long-term debt in foreign currency to negative from stable (keeping the credit ratings at “BBB,” “BBB” and “Baa1,” respectively) due to the challenging relationship between the executive and legislative branches, which limited the government’s ability to implement timely policies. In October 2023, Fitch confirmed its rating, with Standard & Poor’s changing its rating to BBB- in April 2024.
The Chilean economy grew 12.0% during 2021, 2.1% during 2022, and 0.2% in 2023. Total fixed investment increased at an annual average rate of 19.5% in real terms from 2021 to 2022 and increased at an annual average rate of 0.7% in real terms from 2022 to 2023. Inflation in Chile, as measured by the change in the consumer price index, was 7.2% in 2021, 12.8% in 2022 and 3.9% in 2023. The Chilean peso appreciated versus the U.S. dollar by 15.6% in 2021, depreciated versus the U.S. dollar by 14.9% in 2022 and appreciated by 3.8% in 2023. Chilean sovereign debt has the highest rating in the South America region, rated A by S&P (October 2022), A2 by Moody’s (September 2022) and A- by Fitch (December 2022).
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Colombian real GDP grew 11.0% in 2021, 23.2% in 2022 and 7.0% in 2023. Inflation in Colombia was 5.6% in 2021, 13.1% in 2022 and 9.3% in 2023. The Colombian peso depreciated against the U.S. dollar by 20.8% in 2022 and appreciated by 20.5% in 2023. Colombia’s sovereign debt was rated BB+ by Fitch (December 2022), BB+ from S&P (January 2023), and Baa2 from Moody’s (March 2023).
From 2020 to 2022, our revenues increased at a compound annual growth rate of 11.4% and from 2022 to 2023 our revenues decreased 2.4%. In the Energy area, revenues increased due to higher oil production in the oil and gas business. In our Infrastructure segment, the increase is mainly explained by higher revenues in Línea 1 and the higher execution of maintenance and works related to the El Niño Phenomenon in Canchaque. This was offset by lower production volume in projects under execution in our Engineering and Construction segment, and lower sales of industrial lots and affordable and traditional housing units in our Real Estate segment.
Fluctuations in Exchanges Rates
In 2023, 27.0%, 54.4%, and 18.6% of our revenues were denominated in soles, U.S. dollars and other currencies, respectively, while 45.3%, 31.3%, and 23.5% of our cost of sales during the year were denominated in soles, U.S. dollars and other currencies, respectively. In addition, as of December 31, 2023, 50.6%, 48.3% and 1.1% of our total debt was denominated in soles, U.S. dollars and other currencies, respectively. Accordingly, fluctuations in the value of these currencies can materially affect the results of our operations. When the Sol appreciates against the U.S. dollar, our operating margins tend to decrease; when the soles depreciate against the U.S. dollar, our operating margins tend to increase (if everything else is held equal). Conversely, the appreciation of the soles against the U.S. dollar tends to decrease our indebtedness and Financial expenses as expressed in soles; and the depreciation of the soles against the U.S. dollar tends to increase our indebtedness and Financial expenses as expressed in soles. We enter into derivatives, from time to time, to hedge part of our financial exposure to currency fluctuations. The value of the soles to the U.S. dollar depreciated in 2021 by 10.5%, and appreciated in 2022 and 2023 by 4.5% and 2.8%, respectively, which impacted the results of our operations.
Estimates of the effects of fluctuations in exchange rates on our consolidated and reportable segment revenues and costs of sales were calculated based on daily average exchange rates and estimated aggregate revenues and cost of sales denominated in U.S. dollars, Chilean pesos and Colombian pesos, and were not calculated on a transaction-by-transaction basis. For additional information on the effect of exchange rate fluctuations on our results of operations, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk —Exchange Rate Risk.”
Cost of Labor, Third-Party Services and Inputs
The largest components of our costs are: labor, which represented 26.8% of our cost of sales and 57.7% of our administrative expenses in 2023; services provided by third parties, which represented 35.1% of our cost of sales and 28.4% of our administrative expenses in 2023; and supplies (including raw materials), which represented 20.2% of our cost of sales in 2023. For a breakdown of our cost of sales and administrative expenses, see Note 25 to our audited annual consolidated financial statements included in this annual report.
Our cost of labor is influenced by, among other factors, the number of our employees, as well as inflation, competition we face for personnel in each of our operating segments and the availability of qualified candidates. From 2021 to 2022, our personnel charges decreased 3.1% and our costs related to services provided by third parties increased by 0.9%. Services provided by third parties include: subcontracting in our E&C segment, such as carpentry work; advisory and consultancy work, including external audit and legal services; and renting of equipment. The principal supplies we use are fuel, cement, and steel, which in the aggregate represented 13.7% of our total input costs in 2022. Our costs for these supplies are affected by, among other factors, the growth or decline of our operations, market prices, including global prices in the case of fuel, and transportation costs. We do not have long-term contracts for the supply of our key supplies. From 2021 to 2022, our input costs increased 59.2%. Our cost of labor, third party services and supplies increased in 2022 primarily due to higher activity levels in our E&C segment. From 2022 to 2023, our personnel charges decreased 19.2%. From 2022 to 2023, costs related to services provided by third parties decreased 3.8%. The principal supplies we use are fuel, cement, and steel, which in the aggregate represented 8.7% of our total input costs in 2023. We do not have long-term contracts for the supply of our key supplies. From 2022 to 2023, our input costs increased 25.0%. Our cost of labor, third party services and supplies increased in 2023 primarily due to higher activity levels in our E&C segment.
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Acquisitions and Dispositions
Our results of operations can be affected by the acquisition or sale of assets. During the 2021-2023 period, we did not have significant acquisitions or sales.
Cyclicality
Our Energy segment is cyclical and affected by the global supply and demand for oil.
Our E&C segment is cyclical as a result of being closely linked to the conditions, performance and growth of the end-markets we serve, which include, among others, the mining, power, oil and gas, transportation, real estate and other infrastructure sectors in Peru, as well as the mining sector in Chile and, the energy sector in Colombia. These industries tend to be cyclical in nature and tend to be affected by factors such as macroeconomic conditions, climate conditions, the level of private and public investment, the availability of credit, changes in laws and regulations and political and social stability. As a result, although downturns impact our entire company, our E&C segment has historically been subject to periods of very high and low demand. The mining and oil and gas sectors, in particular, are also driven by worldwide demand for the underlying commodities, including, among others, silver, gold, copper, oil and gas, which can be affected by such other factors as global economic conditions and geopolitical affairs.
Our Real Estate segment is also cyclical and is significantly affected by changes in general and local economic conditions, such as employment levels and job growth, availability of financing for home buyers, interest rates, foreclosure rates, inflation, consumer confidence and housing demand.
Seasonality
Our business, on a consolidated basis, has not historically experienced seasonality. In our Infrastructure segment, we have experienced moderate seasonality at (i) Norvial, due to heightened vehicular traffic activity during the summer season in the first quarter of the year, and (ii) UNNA Energía’s gas processing plant, which typically closes for maintenance during the rainy season in the first quarter of the year, as demand for gas is lower during this time.
Infrastructure
Traffic and Fees for Toll Roads
The majority of our toll roads revenues derives from the Norvial concession. Unlike our other toll road concessions, our revenues from the Norvial concession depend on traffic volume. Traffic volume on the Norvial road slightly decreased by 3.4% from 2022 to 2023 due to social-political and environmental impacts associated with cyclone Yaku, which are expected to be recovered during 2024. For the Norvial toll road, the toll rate is set out in the Norvial concession agreement and adjusted in accordance with a contractual formula that takes into account the Sol/U.S. Dollar exchange rate and Peruvian and United States inflation rates. Under our Survial and Canchaque road concessions, our revenues consist of annual fees paid by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the roads, which can vary depending on the amount of road maintenance required due to road wear and tear.
Under the Norvial concession contract, we are required to expand certain stretches of the highway by, among other things, adding two additional lanes. The first stage of construction was completed in 2008 and the second stage was completed in December 2019. Norvial’s capital investment for the second stage was S/330 million (US$89 million). In May 2018, we signed an investment agreement with BCI Peru to monetize future dividends of Norvial. The amount of the transaction was S/157.1 million (US$42.3 million), the proceeds of which were applied to the reduction of indebtedness related to GSP.
Mass Transit
We generate revenue from our Lima Metro concession based on kilometers traveled per train, with a fee per kilometer, the number of trains required to be in operation and the number of kilometers that we are required to travel established by the terms of the concession. Our revenues do not depend on passenger traffic volume. Our results in this concession between 2022 and 2023 were influenced by the reliability and proper operation of our trains. We currently have all 44 trains in operation (including three backup trains).
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Awarding and Timing of Infrastructure Concessions and Government Contracts
The results of operations of our Infrastructure segment can be affected by our ability to win new concessions and government contracts, which depend in part on government policies and our ability to compete effectively.
Our results in the operation and maintenance of infrastructure assets depend on our ability to obtain contracts from the government or infrastructure concessionaires, such as those in our Infrastructure segment, which depend on government policies and our ability to compete effectively. We typically obtain higher revenues from these contracts during the commencement of services as we bring roads to proper operating condition, and lower revenues at the end of the contract term as services wind down.
Our results in our Infrastructure segment are also affected by the timing of the commencement of operations under our concessions, as well as when we were required to undertake significant capital investments or major construction works under the terms of our concessions. Under our Norvial and Lima Metro concessions, we were required to undertake capital investments during the initial years of the concessions for which we are compensated throughout the term of the concessions by our toll rate in the case of the Norvial concession and tariffs in the case of the Lima Metro concession. Under our Survial, Canchaque and La Chira concessions, we generated revenues in our Infrastructure segment from our construction activities during the pre-operational phase, and once operations commenced, we generate revenues from fees related to operation and maintenance. Survial, Canchaque and La Chira have financed their construction costs through the sale of government certificates of construction to financial institutions at a discount from face value. Certificates of construction are negotiable instruments that the Peruvian government typically delivers upon completion of each stage of a project and which entitle the holder to receive payment from the government equal to the capital investment made in the corresponding stage upon completion of the entire project. Accordingly, the results of our Infrastructure segment may be affected by the discount rates obtained on the sale of government certificates of construction. For more information on our obligations and compensation under our concessions, see “Item 4.B. Information on the Company—Business Overview—Infrastructure.”
Energy
A substantial part of the revenues in our Energy segment depends on global prices of crude oil. Under our crude oil procurement contracts, we are entitled to sale the 100% of crude oil volume to Petroperu of each field (Blocks III and IV) according to a basket of international crude oil prices. Under our contracts, we acquire the extracted hydrocarbons and pay royalties, which are also based on a basket of international crude prices and the level of production. Historically, oil prices have been volatile and are likely to be volatile again in the future. During 2021, 2022 and 2023, average Brent crude prices were US$70.67, US$101.18 and US$82.81 per barrel, and the average crude oil price we received in these years was US$68.7, US$81.73 and US$82.41 per barrel of extracted oil, respectively. Due to our activities being conducted in mature oil fields, which have been producing oil for 100 years in the case of Block III, 95 years in the case of Block IV and for over 50 in the case of years Block V, our oil production depends primarily on the level of our drilling and production activities. Our operations in Block I and Block V expired in December 2021 and October 2023, respectively.
Our Pariñas gas processing plant has a delivery and gas processing and fractionation contract with Empresa Eléctrica de Piura S.A. (ENEL), a thermal power generation subsidiary of the Endesa group. Under this contract, ENEL delivers natural gas that it purchases from onshore and offshore gas producers in the Talara area. We are responsible for all operating costs of the gas processing plant but are entitled to keep revenues from the sale of all resulting natural gas liquids to third parties after delivery of all dry gas and payment of a variable royalty to ENEL. 82.4% of the total volume of natural gas processed by our Pariñas gas processing plant depends upon gas volumes demanded by ENEL for its gas-fired turbines, which can vary significantly. Prices for natural gas liquids can also fluctuate significantly and are affected by market prices for LPG and crude oil. We processed 30.41 MMcf per day during 2021, 31.68 MMcf per day during 2022 and 28.48 MMcf per day during 2023.
In connection with our fuel storage terminal business, under two operation contracts with PetroPeru, we receive revenues related to monthly reserved volume in storage tanks for refined crude products (storage fee) and for volumes loaded and dispatched into railroad cars or cistern trucks from each terminal (throughput fee). These fees are adjusted annually to account for U.S. inflation. Our fuel storage activities in the North and Central Terminals are carried out under 20-year contracts, which expire in 2034.
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Real Estate
The results of operations of our Real Estate segment are driven by the number of units we develop and deliver in a reporting period, our mix of unit sales (affordable housing versus housing), unit prices, land purchase prices and our costs of construction. These results are also affected by a number of factors that may impact the Peruvian real estate sector as a whole, including: the availability of government subsidies for affordable housing; prices of suitable land in particular areas; regulation of real estate development imposed by national, regional and local laws and regulators, and the time required to obtain applicable construction permits and licenses; the unemployment rate and wage levels; prevailing interest rates and availability of financing; the supply in the market; the level of customer interest in our new projects; and our costs, such as the price of labor, materials, insurance, taxes and other public charges. We delivered 1,515, 1,310 and 1,164 units in 2021, 2022 and 2023, respectively.
The results of operations of our Real Estate segment are also significantly affected by our sales of land parcels. Due to the appreciation of land prices in Peru, and because we record our land holdings at book value (i.e., without marking to market), our recent land sales have resulted in high margins.
In addition, the net profit attributable to controlling interests of our Real Estate segment is significantly affected by the financing and commercial arrangements we use to purchase land and to develop real estate projects. Depending on the level of non-controlling interests used to finance our real estate projects, our Real Estate segment tends to have significant (Loss) profit attributable to non-controlling interest. See “—Results of Operations—General—Real Estate.”
E&C
The main driver of our E&C results is economic growth in Peru and to a lesser extent Chile and Colombia, particularly private and public investment in mining, power, oil and gas, transportation, real estate, and other infrastructure sectors.
Appropriate pricing and budgeting are also key to our project results, which can be affected by factors such as competition, direct negotiations with clients (as opposed to competitive bidding processes), the accuracy of our estimations of project costs and any unexpected cost overruns.
Our typical E&C contracts are unit prices, lump-sum, and EPC contracts. For a description of our E&C contracts, see “Item 4.B. Information on the Company—Business Overview—Engineering and Construction—Contracts.” The nature of our contractual arrangements can affect our margins depending on where the cost burden is placed, whether with the client or with us, and certain contractual arrangements tend to have lower gross margins.
During 2023, we maintained the same level of sales as in 2022 as a result of the execution of Quellaveco, San Gabriel and Lima Airport projects in Peru, Orotoy and Termosuria in Colombia and Quebrada Blanca 2 and Spence in Chile.
New Accounting Pronouncements, Amendments and Interpretations
For information on new accounting pronouncements, amendments and interpretations, see Note 3 to our audited annual consolidated financial statements included in this annual report.
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Non-GAAP Financial Measure and Reconciliation
In this annual report, we present Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment, as non-GAAP financial measures. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We present Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment because we believe they provide readers with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis. Our management uses Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment, among other measures, for internal planning and performance measurement purposes. We believe that Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment are useful in evaluating our operating performance compared to other companies operating in our sectors because the calculation of Adjusted EBITDA generally eliminates the effect of financing and income tax expenses and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. Adjusted EBITDA and Adjusted EBITDA per Segment should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (in each case, as determined in accordance with IFRS). Adjusted EBITDA, Adjusted EBITDA per Segment, Adjusted EBITDA Margin and Adjusted EBITDA Margin per Segment, as calculated by us, may not be comparable to similarly titled measures reported by other companies.
We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. We define “Adjusted EBITDA Margin” as Adjusted EBITDA divided by revenues. Also, we define “Adjusted EBITDA per Segment” as net (loss) profit per segment plus: financial income and expenses per segment; interests for present value of financial asset or liability per segment; income tax per segment; and depreciation and amortization per segment, and “Adjusted EBITDA Margin per Segment” as Adjusted EBITDA per Segment divided by revenues per segment.
The financial information is presented in millions, however, for the calculation of the figures presented more decimals have been considered. For this reason, in some occasions, the sums of the figures in millions may differ from the totals by decimals. The same effect may occur with percentage variations.
| For the year ended December 31, | ||||||||||||
| 2023(1) | 2023 | 2022 | ||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||
| Profit (loss) of the year | 38.0 | 141.1 | (362.1 | ) | ||||||||
| Financial expenses | 51.2 | 190.0 | 156.5 | |||||||||
| Financial income | (8.4 | ) | (31.3 | ) | (15.5 | ) | ||||||
| Interests for present value of financial asset or liability | (0.7 | ) | (2.6 | ) | 86.0 | |||||||
| Income tax | 52.7 | 195.6 | 131.3 | |||||||||
| Depreciation and amortization | 63.8 | 236.9 | 177.0 | |||||||||
| Adjusted EBITDA(2) | 196.6 | 729.8 | 173.3 | |||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (In each case, as determined in accordance with IFRS). Adjusted EBITDA , as calculated by us, may not be comparable to similarly titled measures reported by other companies. |
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Adjusted EBITDA per Segment
Adjusted EBITDA in the Infrastructure Segment
| For the year ended December 31, | ||||||||||||
| 2023(1) | 2023 | 2022 | ||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||
| Profit (loss) of the year | 33.2 | 123.1 | 144.2 | |||||||||
| Financial expenses | 8.5 | 31.4 | 35.6 | |||||||||
| Financial income | (4.2 | ) | (15.6 | ) | (4.8 | ) | ||||||
| Interests for present value of financial asset or liability | 0.6 | 2.1 | 0.3 | |||||||||
| Income tax | 15.2 | 56.6 | 52.2 | |||||||||
| Depreciation and amortization | 16.6 | 61.6 | 61.5 | |||||||||
| Adjusted EBITDA(2) | 69.8 | 259.2 | 288.9 | |||||||||
Adjusted EBITDA in the Energy Segment
| For the year ended December 31, | ||||||||||||
| 2023(1) | 2023 | 2022 | ||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||
| Profit (loss) of the year | 14.2 | 52.8 | 63.9 | |||||||||
| Financial expenses | 5.5 | 20.3 | 17.7 | |||||||||
| Financial income | (0.7 | ) | (2.6 | ) | (1.7 | ) | ||||||
| Interests for present value of financial asset or liability | 0.7 | 2.7 | (2.1 | ) | ||||||||
| Income tax | 6.4 | 23.7 | 30.9 | |||||||||
| Depreciation and amortization | 37.5 | 139.4 | 75.5 | |||||||||
| Adjusted EBITDA(2) | 63.6 | 236.3 | 184.2 | |||||||||
Adjusted EBITDA in the Real Estate Segment
| For the year ended December 31, | ||||||||||||
| 2023(1) | 2023 | 2022 | ||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||
| Profit (loss) of the year | 7.6 | 28.2 | 82.9 | |||||||||
| Financial expenses | 2.6 | 9.6 | 9.4 | |||||||||
| Financial income | (1.9 | ) | (7.1 | ) | (1.1 | ) | ||||||
| Interests for present value of financial asset or liability | (1.4 | ) | (5.3 | ) | (2.6 | ) | ||||||
| Income tax | 6.3 | 23.3 | 42.9 | |||||||||
| Depreciation and amortization | 1.6 | 5.9 | 6.2 | |||||||||
| Adjusted EBITDA(2) | 14.7 | 54.6 | 137.7 | |||||||||
Adjusted EBITDA in the E&C Segment
| For the year ended December 31, | ||||||||||||
| 2023(1) | 2023 | 2022 | ||||||||||
| (in US$ millions) | (in millions of S/) | |||||||||||
| Profit (loss) of the year | (0.6 | ) | (2.3 | ) | (147.5 | ) | ||||||
| Financial expenses | 21.1 | 78.3 | 70.0 | |||||||||
| Financial income | (0.3 | ) | (1.1 | ) | (2.0 | ) | ||||||
| Interests for present value of financial asset or liability | 0.1 | 0.3 | 6.2 | |||||||||
| Income tax | 21.7 | 80.4 | 15.8 | |||||||||
| Depreciation and amortization | 6.8 | 25.1 | 27.2 | |||||||||
| Adjusted EBITDA(2) | 48.7 | 180.7 | (30.3 | ) | ||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | We define “Adjusted EBITDA” as net (loss) profit plus: financial income and expenses; interests for present value of financial asset or liability; income tax; and depreciation and amortization. Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (In each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. |
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Results of Operations
General
Accounting for Subsidiaries, Joint Operations, Joint Ventures and Associated Companies
Results of our subsidiaries, joint operations, joint ventures and associated companies are reflected in our financial results. We refer to our subsidiaries as those entities over which we exercise control. We consolidate the results of our subsidiaries in our financial statements and we reflect the profit corresponding to the minority interests in our subsidiaries under “profit attributable to non-controlling interests” in our income statement. Our consolidation of the results of our subsidiaries includes subsidiaries in which we have less than 50% of the equity. We refer to business activities in which we share control with unrelated entities as joint arrangements, including joint operations and joint ventures, which are typically conducted through an agreement with a third party to carry out specific projects. We contribute our assets to these projects and derive revenue from their use. In our financial statements we recognize, in relation to our interest in a joint operation, our assets and liabilities, including our share of any asset or liability we hold jointly with our partner, as well as our share of revenue and expense from the joint operation. We refer to our associated companies as those entities over which we have significant influence but do not control. We reflect the results of our associated companies and joint ventures under the equity method of accounting in our financial statements under the line item “share of the profit and loss in associates” in our income statement. For further information, including a list of our subsidiaries, joint operations, joint ventures, and associated companies, see Notes 6.A, 6.B, 6.C, 6.D, and 14 to our audited annual consolidated financial statements included in this annual report.
Intersegment Transactions
From time to time, certain of our operating segments provide services between each other. In 2022 and 2023, 0.24% and 0.68% of revenues in our E&C segment, respectively, derived from the construction and services for AENZA’s Infrastructure and Energy companies (UNNA Transporte, Norvial, Survial, Consorcio Terminales and Canchaque). Also, in 2022 and 2023, less than 0.04% and 0.03% of revenues in our E&C segment, respectively, derived from additional construction services for AENZA’s real estate company, Viva, and its subsidiaries. Accordingly, in such circumstances, the segment providing services recognizes revenues, and the segment receiving such services recognizes costs of sales, relating to the services provided. These intersegment revenues and cost of sales are eliminated in the consolidation of our financial results. Nevertheless, our Infrastructure segment may recognize gross profits or losses based on the difference between the fees the segment charges in accordance with concession terms and costs it incurs relating to services provided by our other segments. For more information on our segments, see Note 7 to our audited annual consolidated financial statements included in this annual report.
Infrastructure
In our Infrastructure segment, we recognize revenues and cost of sales as follows:
(1) Toll Roads:
| ● | For Norvial, we obtain revenues for toll fees collected, minus deductions required to be transferred to the government as described in “Item 4.B. Information on the Company—Business Overview—Infrastructure—Principal Infrastructure Activities—Toll Roads—Norvial,” which we recognize upon receipt. In June 2018, we signed an investment agreement with BCI Peru, to monetize future dividends of Norvial. The amount of the transaction was US$42.3 million, the proceeds of which were applied to the reduction of indebtedness related to GSP. Cost of sales for Norvial include fees paid to third parties (primarily our subsidiary UNNA Transporte) for operation and maintenance services as well as the amortization of the road concession registered as an intangible asset in our financial statements; and |
| ● | For Survial and Canchaque, we obtain revenues for routine and periodic maintenance services, which we recognize in the period in which the services are performed. Cost of sales for Survial and Canchaque include fees paid to third parties (primarily our subsidiary UNNA Transporte) for operation and maintenance services. We do not recognize the Survial and Canchaque concessions as intangible assets and therefore do not amortize the concessions. |
For further information, see Notes 2.W, 2.X and 19 to our audited annual consolidated financial statements included in this annual report.
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(2) Mass Transit: We obtain revenues from our Lima Metro concession based on a tariff per kilometer travelled by our trains in operation in accordance with a schedule established in our concession agreement, which we recognize in the period in which the services are performed. Under the concession, the tariff is comprised of three components: (i) fees related to our operation and maintenance services; (ii) fees related to the Peruvian government’s repayment of the amounts we invest to purchase trains, ongoing capital expenditures and other infrastructure for the Peruvian government; and (iii) fees related to interest we charge to the Peruvian government in connection with the amounts we invest to purchase such trains, ongoing capital expenditures and other infrastructure. In 2021, the fees related to items (i), (ii) and (iii) were S/358.9 million. In 2022, the fees related to items (i), (ii) and (iii) were S/398.9 million. In 2023, the fees related to items (i), (ii) and (iii) were S/424.8 million, respectively. We only recognize in our income statement the portion of the tariff that relates to items (i) and (iii). We record the amounts paid by us that relate to item (ii) as long-term accounts receivables from the Peruvian government. Accordingly, tariff payments received relating to item (ii) reduce our accounts receivables but do not impact our income statement, and we do not amortize our investments in our income statement as our investment in the concession is recorded as an account receivable with the government rather than a depreciable investment.
We entered into the fourth addendum to the Lima Metro concession contract on July 11, 2016, in order to expand transportation capacity. In accordance with the fourth addendum, the expansion project will involve: (i) the purchase of 20 new trains; (ii) the purchase of 39 new cars; and (iii) the improvement and expansion of the existing infrastructure. As compensation for the investments of the expansion project, we will be entitled to receive the following: (i) an advance payment of 30% of each investment component; and (ii) the balance of 70% of each investment component, compensated through the annual payment for additional investments (pago anual por inversiones complementarias). We register the estimated compensation related to the direct cost in the income statement, plus a margin in the same period. In 2021, 2022, and 2023, there was no income related to the investment components.
For further information, see Note 11 to our audited annual consolidated financial statements included in this annual report. Cost of sales for the Lima Metro include fees paid to third parties (primarily our E&C segment, our subsidiary UNNA Transporte and other subcontractors) for construction and operation and maintenance services, energy and our financing costs related to the purchase of trains.
(3) Water Treatment: We obtained revenues from the engineering design and construction of La Chira wastewater treatment plant, which we recognize based on the percentage-of-completion method of accounting. Since the plant began operating in August 2016, we have obtained revenues only for operation and maintenance services, which we recognize in the period in which the services are performed.
(4) Operation and Maintenance of Infrastructure Assets: We obtain revenues from our operation and maintenance of infrastructure assets line of business for the operation and maintenance services we provide to the government and concessionaires (currently concessions within our Infrastructure segment), which we recognize in the period in which the services are performed. We receive unrestricted advances with respect to our service contracts with the government, which vary from 10% to 30% of the contract price, which we record as an account payable. We typically invoice our clients on a periodic basis as the project progresses, deducting from the related advances on a proportional basis. For further information, see Note 20 to our audited annual consolidated financial statements included in this annual report. Our cost of sales in this line of business includes personnel costs, services provided by third parties, machinery and other materials (primarily trucks), and depreciation of equipment utilized to provide services.
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Energy
We obtain revenues from extraction services and license contracts related to oil and gas production, sale of oil, fuel storage services and the sale of natural gas liquids derived from our gas processing and fractionation services, which we recognize in the period in which the services are performed and, in the case of sale of oil and natural gas liquids, when the sale is made. Cost of sales for our Energy segment includes labor, materials, amortization and depreciation of oil wells, depreciation of the gas plant, maintenance, general expenses, and royalties.
Real Estate
We obtain revenues in our Real Estate segment from sales of affordable housing and housing units, commercial buildings and land parcels, which we recognize at the time of delivery of the unit or building and, in the case of land parcels, at the time of the sale. We typically pre-sell our affordable housing and housing units prior to and during construction and use the related proceeds we receive to finance the construction of the units. These pre-sale funds are restricted and released from escrow to us periodically as construction progresses. Our Real Estate cost of sales includes the cost to purchase land, costs of architectural design and construction (which usually includes payments to third parties, primarily our E&C segment), licensing and permit costs, personnel costs, and fees to third parties related to sanitation or electrical engineering. In 2021, 2022, and 2023, our cost of land that is allocated to units delivered during these periods amounted to S/24.5 million, S/17.3 million, and S/4.8 million. We recognize land purchases as inventory, and, accordingly, do not mark-to-market the value of our land for changes in fair value. For further information, see Note 13 to our audited annual consolidated financial statements included in this annual report.
In our Real Estate segment, we have significant (Loss) profit attributable to non-controlling interest. We hold a significant portion of our land bank through Almonte, in which we have a 50.45% interest, and we consolidate Almonte’s results in our financial statements. In addition, we undertake a significant number of our real estate projects through entities in which we may have a majority interest, co-equal interest or minority interest; when we have control over these entities, we consolidate their results in our financial statements regardless of whether we own a majority of the capital. Furthermore, in connection with our affordable housing projects, we generally partner with real estate investment funds and insurance companies that provide between 60% and 70% of the total capital required to purchase the land and cover certain pre-construction costs in exchange for equity in the project. Although we typically own a minority interest in these projects, we consolidate their results in our financial statements because we exercise control over the project. Accordingly, we reflect the profit corresponding to our real estate partners under (Loss) profit attributable to non-controlling interest in our income statement. See “—Accounting for Subsidiaries, Joint Operations, Joint Ventures and Associated Companies.”
Engineering and Construction
Revenues in our E&C segment are obtained from engineering and construction services provided to clients and are recognized under the percentage-of-completion method of accounting. For further information, see Note 2.W to our audited annual consolidated financial statements included in this annual report. We receive unrestricted client advances in a substantial majority of E&C projects, on average equal to 10% of the contract price in 2022 and 10% of the contract price in 2023, which we record as an account payable. We typically invoice our clients on a periodic basis as each project progresses, deducting from the related advances on a proportional basis. For further information, see Note 20 to our audited annual consolidated financial statements included in this annual report. Cost of sales includes labor, subcontractor expenses, materials, equipment and project-specific general expenses.
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Comparison of Results of Operations of 2022 and 2023
The following table summarizes our results of operations for the year ended December 31, 2023 and 2022.
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in
US$ millions) | (in millions of S/) | |||||||||||||||
| Revenue | 1,158.5 | 4,301.5 | 4,405.1 | (2.4 | )% | |||||||||||
| Cost of sales and services | (971.2 | ) | (3,605.9 | ) | (3,905.6 | ) | (7.7 | )% | ||||||||
| Gross profit | 187.3 | 695.6 | 499.5 | 39.2 | % | |||||||||||
| Administrative expenses | (59.1 | ) | (219.4 | ) | (214.5 | ) | 2.3 | % | ||||||||
| Other income and expenses | 3.7 | 13.7 | (290.6 | ) | (104.7 | )% | ||||||||||
| Operating profit (loss) | 131.9 | 489.9 | (5.6 | ) | (8,878.1 | )% | ||||||||||
| Financial expenses | (51.2 | ) | (190.0 | ) | (156.5 | ) | 21.5 | % | ||||||||
| Financial income | 8.4 | 31.3 | 15.5 | 102.5 | % | |||||||||||
| Interest for present value of financial asset or liability | 0.7 | 2.6 | (86.0 | ) | (103.0 | )% | ||||||||||
| Share of the profit or loss of associates and joint ventures accounted for using the equity method | 0.8 | 3.0 | 1.9 | 57.9 | % | |||||||||||
| (Loss) profit before income tax | 90.7 | 336.7 | (230.7 | ) | (246.0 | )% | ||||||||||
| Income tax expense | (52.7 | ) | (195.6 | ) | (131.3 | ) | 48.9 | % | ||||||||
| (Loss) profit for the year | 38.0 | 141.1 | (362.1 | ) | (139.0 | )% | ||||||||||
| (Loss) profit attributable to owners of the Company | 22.8 | 84.6 | (451.2 | ) | (118.8 | )% | ||||||||||
| (Loss) profit attributable to non-controlling interest | 15.2 | 56.5 | 89.1 | (36.6 | )% | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
Revenue
Our total revenues decreased by 2.4%, or S/103.6 million, from S/4,405.1 for 2022 to S/4,301.5 million for 2023. In the Energy segment, revenues increased due to higher oil production in the oil and gas business. In the Infrastructure segment, the increase is mainly explained by higher revenues in Line 1 of the Lima Metro, the higher execution of maintenance and works related to the El Niño phenomenon in Canchaque. This was offset by lower production volume in projects under execution in the Engineering and Construction segment, and lower sales of industrial lots and affordable and traditional housing units in Real Estate.
The following table sets forth a breakdown of our revenues by reportable segment for 2022 and 2023.
| Year ended December 31, | ||||||||||||||||||||||||
2023(1) | 2022 | Variation | ||||||||||||||||||||||
| (in US$ millions) | (in millions of S/) | % of Total | (in millions of S/) | % of Total | % | |||||||||||||||||||
| Infrastructure | 273.4 | 1,015.0 | 23.6 | % | 1,007.7 | 22.9 | % | 0.7 | % | |||||||||||||||
| Energy | 183.9 | 682.7 | 15.9 | % | 633.8 | 14.4 | % | 7.7 | % | |||||||||||||||
| Real Estate | 59.3 | 220.0 | 5.1 | % | 367.3 | 8.3 | % | (40.1 | )% | |||||||||||||||
| Engineering and Construction | 714.7 | 2,653.5 | 61.7 | % | 2,679.2 | 60.8 | % | (1.0 | )% | |||||||||||||||
| Corporate | 25.9 | 96.3 | 2.2 | % | 68.1 | 1.5 | % | 41.5 | % | |||||||||||||||
| Eliminations | (98.6 | ) | (366.0 | ) | (8.5 | )% | (351.0 | ) | (8.0 | )% | 4.3 | % | ||||||||||||
| Total | 1,158.5 | 4,301.5 | 100 | % | 4,405.1 | 100 | % | (2.4 | )% | |||||||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
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Cost of Sales and Services
Our total cost of sales decreased by 7.7%, or S/299.7 million, from S/3,905.6 million for 2022 to S/3,605.9 million for 2023. This decrease is mainly a result of the higher profit recorded in the Engineering and Construction segment, particularly in Cumbra Peru, in connection with the project with Lima Airport Partners for the construction of the new Jorge Chavez airport terminal and, in Morelco, as a result of the Santa Monica project with Ecopetrol. This was partially offset by the lower profit related to the lower sale of industrial lots in Viva in 2023, and the higher depreciation and amortization of drilled wells and higher associated expenses in the Blocks III and IV due to the impacts of the rains in 2023 in UNNA Energía.
During 2022, E&C gross profit decreased mainly due to the settlement agreement between Cumbra Peru and Técnicas Reunidas de Talara in relation to the Talara Refinery Modernization Project for which a loss of US$25 million was recorded and the provision of US$11.2 million due to the court decision that declared unfounded the claim for Partial Annulment of the Arbitration Ruling filed by Cumbra Peru against EGEMSA in relation to the Machupicchu Hydroelectric Power Plant project of April 2009. Additionally, we have other impairments of US$4.6 million from other accounts receivable.
Gross Profit
Our gross profit increased by 39.2%, or S/196.0 million, from S/499.5 million for 2022 to S/695.6 million for 2023. Our gross margin (i.e., gross profit as a percentage of revenues) for 2023 was 16.2%, compared to 11.3% for 2022. This increase was primarily due to the reasons mentioned above under revenues and costs of sales and services.
The following table sets forth a breakdown of our gross profit by reportable segment for 2022 and 2023.
| Year ended December 31, | ||||||||||||||||||||||||
2023(1) | 2022 | Variation | ||||||||||||||||||||||
(in US$ millions) | (in millions of S/) | % of Total | (in millions of S/) | % of Total | % | |||||||||||||||||||
| Infrastructure | 61.3 | 227.6 | 32,7 | % | 229.8 | 46.0 | % | (0.9 | )% | |||||||||||||||
| Energy | 27.6 | 102.3 | 14.7 | % | 118.9 | 23.8 | % | (14.0 | )% | |||||||||||||||
| Real Estate | 17.3 | 64.2 | 9.2 | % | 151.8 | 30.4 | % | (57.7 | )% | |||||||||||||||
| Engineering and Construction | 74.8 | 277.6 | 39.9 | % | (23.3 | ) | (4.7 | )% | (1,291.6 | )% | ||||||||||||||
| Corporate | 3.9 | 14.5 | 2.1 | % | 11.7 | 2.3 | % | 23.9 | % | |||||||||||||||
| Eliminations | 2.5 | 9.4 | 1.4 | % | 10.6 | 2.1 | % | (11.0 | )% | |||||||||||||||
| Total | 187.3 | 695.6 | 100 | % | 499.5 | 100 | % | 39.2 | % | |||||||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
Administrative Expenses
Our administrative expenses increased by 2.3%, or S/4.8 million, from S/214.5 million for 2022 to S/219.4 for 2023. This increase was mainly due to higher management services costs associated to UNNA Transporte and higher management services costs and intermediation costs from the sale of lots in Almonte associated to Viva. As a percentage of revenues, our administrative expenses increased to 5.1% in 2023, from 4.9% in 2022.
Other Income and Expenses
Our other income, net increased by S/304.3 million, from S/290.6 million in expenses for 2022 to S/13.7 in income for 2023. Other income and expenses in 2023 registered the adjustment of the provision for the INDECOPI fine in Cumbra Peru in the amount of S/4.0 million due to the update of the tax unit and tax contingencies of Cumbra Peru for S/3.0 million, which was partially offset by income in Holding related to the refund of an insurance policy and the recovery of provisions.
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Other operating expenses at the end of 2022 registered the provision related to the Final Agreement on Settlement and Cooperation. In accordance with accounting standards, in previous quarters it had been recorded at discounted value. This provision is recorded in nominal value in line with the signing of the Final Agreement on Settlement and Cooperation. Likewise, the total provision is recorded in AENZA, therefore in line with this, a provision was recorded in Holding (S/324.5 million), partially offset by the reversal of the provision in Cumbra Peru (S/41.7 million) and Unna Transporte (S/24.5 million). Additionally, other operating expenses recorded a provision in the Chavimochic project for S/14.5 million for the impairment of the investment and the net effect in Cumbra Peru and Holding for the sale of Cumbra Peru’s 43.3% participation in Viva to AENZA.
Operating Profit (Loss)
We had an operating profit of S/489.9 million for 2023, compared to an operating loss of S/5.6 million for 2022. Our operating margin (i.e., operating profit as a percentage of revenues) was 11.4% for 2023, compared to (0.1)% for 2022. The increase in operating margin is primarily a result of higher gross profit recorded in 2023 in E&C due to the higher profit recorded in Cumbra Peru in the project with LAP for the construction of the new airport terminal and in Morelco for the Santa Monica project with Ecopetrol.
The following table sets forth a breakdown of our operating profit by reportable segment for 2022 and 2023.
| Year ended December 31, | ||||||||||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||||||||||
| (in US$ millions) | (in millions of S/) | % of Total | (in millions of S/) | % of Total | % | |||||||||||||||||||
| Infrastructure | 53.2 | 197.6 | 40.3 | % | 227.4 | (4,134.5 | )% | (13.1 | )% | |||||||||||||||
| Energy | 25.3 | 94.0 | 19.2 | % | 105.6 | (1,920.0 | )% | (11.0 | )% | |||||||||||||||
| Real Estate | 13.1 | 48.6 | 9.9 | % | 130.9 | (2,380.0 | )% | (62.8 | )% | |||||||||||||||
| Engineering and Construction | 41.9 | 155.6 | 31.8 | % | (71.0 | ) | 1,290.7 | % | (319.2 | )% | ||||||||||||||
| Corporate | (3.3 | ) | (12.3 | ) | (2.5 | )% | (356.2 | ) | 6,476.4 | % | (96.6 | )% | ||||||||||||
| Eliminations | 1.7 | 6.3 | 1.3 | % | (42.2 | ) | 767.3 | (115.0 | )% | |||||||||||||||
| Total | 131.9 | 489.8 | 100 | % | (5.5 | ) | 100 | % | (9,005.5 | )% | ||||||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
The following discussion analyzes our key results of operations on a reportable segment basis. For further information on our operating segments, see Note 7 to our audited annual consolidated financial statements included in this annual report.
Infrastructure
The table below sets forth selected financial information related to our Infrastructure segment.
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in US$ millions) | (in millions of S/) | % | ||||||||||||||
| Revenues | 273.4 | 1,015.0 | 1,007.7 | 0.7 | % | |||||||||||
| Gross profit (loss) | 61.3 | 227.6 | 229.8 | (0.9 | )% | |||||||||||
| Operating profit (loss) | 53.2 | 197.6 | 227.4 | (13.1 | )% | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
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Revenues
The table below sets forth the breakdown of our Infrastructure revenues by principal lines of business.
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in US$ millions) | (in millions of S/) | % | ||||||||||||||
| Toll Roads (2) | 83.2 | 308.8 | 325.4 | (5.1 | )% | |||||||||||
| Operation and Maintenance of Infrastructure Assets (2) | 77.6 | 288.0 | 289.1 | (0.4 | )% | |||||||||||
| Mass Transit | 111.3 | 413.4 | 388.8 | 6.3 | % | |||||||||||
| Water Treatment | 1.3 | 4.8 | 4.4 | 8.8 | % | |||||||||||
| Total | 273.4 | 1,015.0 | 1,007.7 | 0.7 | % | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | These line items are included in Toll Roads in the footnote 7(B) of our audited annual consolidated financial statements |
Our Infrastructure revenues increased 0.7%, or S/7.3 million, from S/1,007.7 million for 2022 to S/1,015.0 million for 2023. The variation in our Infrastructure revenues principally reflected the following:
| ● | Toll Roads: a 5.1%, or S/16.6 million, decrease in revenues, from S/325.4 million for 2022 to S/308.8 million for 2023, primarily due lower execution of complementary works and lower traffic compared to 2022 in Norvial, partially offset by the tariff indexation in Norvial and higher execution of maintenance and works related to the El Niño phenomenon in Canchaque. |
| ● | Mass Transit: a 6.3%, or S/24.6 million, increase in revenues, from S/388.8 million for 2022 to S/413.4 million for 2023, primarily due to the increase in the indexation tariff and more complementary services, partially offset by the reduction of additional kilometers and the lower capital amortization applied to the long-term account receivable that is considered in the revenues by accounting standards. |
| ● | Operation and Maintenance of Infrastructure Assets: a 0.4 %, or S/1.1 million, decrease in revenues, from S/289.1 million for 2022 to S/288.0 million for 2023. |
| ● | Water Treatment: a 8.8%, or S/0.4 million, increase in revenues, from S/4.4 million for 2022 to S/4.8 million for 2023, primarily due to tariff update. |
Gross Profit
The table below sets forth the breakdown of our Infrastructure gross profit by principal lines of business:
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in US$ millions) | (in millions of S/) | % | ||||||||||||||
| Toll Roads (2) | 23.5 | 87.4 | 88.3 | (1.0 | )% | |||||||||||
| Operation and Maintenance of Infrastructure Assets (2) | 3.8 | 14.0 | 17.1 | (18.2 | )% | |||||||||||
| Mass Transit | 33.2 | 123.4 | 119.7 | 3.1 | % | |||||||||||
| Water Treatment | 0.7 | 2.7 | 4.6 | (41.0 | )% | |||||||||||
| Total | 61.3 | 227.6 | 229.8 | (0.9 | )% | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | These line items are included in Toll Roads in the footnote 7(B) of the audited annual consolidated financial statements |
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Our Infrastructure gross profit decreased 0.9%, or S/2.2 million, from S/229.8 million for 2022 to S/227.6 in 2023. Our Infrastructure gross margin was 22.8% for 2022 and 22.4% for 2023. The variation in our Infrastructure gross profit principally reflected the following:
| ● | Toll Roads: a 1.0%, or S/0.8 million, decrease in gross profit, from S/88.3 million for 2022 to S/87.4 million for 2023. Our toll roads gross margin was 28.3% for 2023 compared to 27.1% in 2022; |
| ● | Mass Transit: a 3.1 %, or S/3.7 million, increase in gross profit, from S/119.7 million for 2022 to S/123.4 for 2023, primarily due to the increase in tariff in the Line 1 of the Lima Metro; |
| ● | Operation and Maintenance of Infrastructure Assets: an 18.2%, or S/3.1 million, decrease in gross profit, from S/17.1 million for 2022 to S/14.0 million for 2023, due to lower maintenance works. Our operation and maintenance of infrastructure assets gross margin was 4.9% for 2023, compared to 5.9% for 2022; and |
| ● | Water Treatment: a 41.0%, or S/1.9 million, decrease in gross profit for 2023, from S/4.6 million for 2022 to a S/2.7 million for 2023, due to a restatement in 2022 related to the asset retirement obligation. Our water treatment gross margin was 57.1% for 2023, compared to 105.3% for 2022. |
Operating Profit
The table below sets forth the breakdown of our Infrastructure operating profit by principal lines of business:
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in US$ millions) | (in millions of S/) | % | ||||||||||||||
| Toll Roads (2) | 21.1 | 78.3 | 78.3 | 0.0 | % | |||||||||||
| Operation and Maintenance of Infrastructure Assets (2) | 0.9 | 3.4 | 39.5 | (91.4 | )% | |||||||||||
| Mass Transit | 30.7 | 114.1 | 105.9 | 7.7 | % | |||||||||||
| Water Treatment | 0.5 | 1.8 | 3.7 | (51.7 | )% | |||||||||||
| Total | 53.2 | 197.6 | 227.4 | (13.1 | )% | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
| (2) | These line items are included in Toll Roads in the footnote 7(B) of the audited annual consolidated financial statements |
Our Infrastructure operating profit decreased 13.1%, or S/29.8 million, from S/227.4 million for 2022 to S/197.6 million for 2023. Our Infrastructure operating margin was 19.5% for 2023, compared to 22.6% for 2022:
| ● | Toll Roads: operating profit was S/78.3 million for 2022 and 2023. Our toll roads operating margin was 25.4% for 2023, compared to 24.1% for 2022; |
| ● | Mass Transit: a 7.7%, or S/8.2 million, increase in operating profit, from an operating profit of S/114.1 million for 2023 to an operating profit of S/105.9 million for 2022, primarily due to higher tariffs. Our mass transit operating margin for 2023 was 27.6%, compared to 27.2% in 2022; |
| ● | Operation and Maintenance of Infrastructure Assets: a 91.4% or S/36.1 million decrease in operating profit, from a S/39.5 million profit for 2022 to S/3.4 million profit for 2023, primarily due to the reversal of the provision of the plea agreement in UNNA Transporte for S/24.5 million. The total provision is recorded in AENZA. Our Operation and Maintenance of Infrastructure Assets operating margin was 1.2% for 2023, compared to 13.7% for 2022; and |
| ● | Water Treatment: a 51.7%, or S/1.9 million, decrease in operating profit, from a S/3.7 million profit for 2022 to an S/1.8 million profit for 2023, primarilydue to a restatement in 2022 related to the asset retirement obligation. Our water treatment operating margin for 2023 was 37.2% for 2023, compared to 83.8% for 2022. |
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Energy
The table below sets forth selected financial information related to our Energy segment:
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in US$ millions) | (in millions of S/) | % | ||||||||||||||
| Revenues | 183.9 | 682.7 | 633.8 | 7.7 | % | |||||||||||
| Gross profit (loss) | 27.6 | 102.3 | 118.9 | (14.0 | )% | |||||||||||
| Operating profit (loss) | 25.3 | 94.0 | 105.6 | 11.0 | % | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
Our Energy segment revenues increased from S/633.8 for 2022 to S/682.7 for 2023, primarily due to higher oil production in the oil and gas business. The average oil price went from US$93.24/bbl in 2022 to US$81.73/bbl in 2023, offset by higher amount of barrels produced per day (“BPD”) production (from 3,063 BPD in 2022 to 4,078 BPD in 2023). Production in 2023 was impacted by the rains in the north of the country. Likewise, production in 2022 was impacted by the suspension of well drilling as a consequence of the pandemic. In June 2022 we started the drilling of Block III. This was partially offset by lower revenues associated with the Gas Plant, mainly due to maintenance work on the plant between August and September 2023, going from 31.68 million PCD in 2022 to 28.63 million PCD in 2023. Likewise, the LPG price decreased from US$60.90/ bbl in 2022 to US$51.74/bbl in 2023.
Our Energy gross profit decreased 14.0%, or S/16.7 million, from S/118.9 million for 2022 to S/102.3 in 2023. Our Energy gross margin was 18.8% for 2022 and 15.0% for 2023. The decrease is mainly explained by higher depreciation and amortization of the wells drilled in Blocks III and IV during 2023, as well as higher associated expenses in the Blocks due to the impacts of the rains during March and April 2023.
Our Energy operating profit decreased 11.0%, or S/11.6 million, from S/105.6 million for 2022 to S/94.0 million for 2023. Administrative Expenses were higher in 2023 compared to 2022, reaching 2.3% of sales compared to 2.2% at the end of 2022. This was due to higher management services expenses. Other Operating Income recorded a non-recurrent income during 2023 of S/7.2 million for the indemnification of material damages and loss of production of Block III due to the rains during March and April 2023.
Real Estate
The table below sets forth selected financial information related to our Real Estate segment:
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in US$ millions) | (in millions of S/) | % | ||||||||||||||
| Revenues | 59.3 | 220.0 | 367.3 | (40.1 | )% | |||||||||||
| Gross profit (loss) | 17.3 | 64.2 | 151.8 | (57.7 | )% | |||||||||||
| Operating profit (loss) | 13.1 | 48.6 | 130.9 | (62.8 | )% | |||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
Revenues. Our Real Estate revenues decreased 40.1%, or S/147.3 million, from S/367.3 million for 2022 to S/220.0 million for 2023. The comparative increase in sales in 2022 was primarily due to the sale of an industrial lots in Almonte in 2022 for S/140 million and the lower amount of social and traditional housing units delivered in 2023.
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Gross Profit. Our Real Estate gross profit decreased 57.7%, or S/87.6 million, from S/151.8 million for 2022 to S/64.2 million for 2023, mainly explained by a higher margin related to an increase in the sale of industrial lots in 2022. The sale of industrial lots has a higher margin than sales of housing units. Gross Margin went from 41.3% in 2022 to 29.2% in 2023.
Operating Profit. Our Real Estate operating profit decreased 62.8%, or S/82.2 million, from S/130.9 million for 2022 to S/48.6 million for 2023. Administrative expenses in 2023 increased 14.9% compared to 2022, mainly due to the increase in management services costs and intermediation costs from the sale of lots in Almonte. Other Operating Income in 2023 for S/2.8 million is related to the liquidation of completed projects and penalties associated to the operation. Other Operating Expenses in 2022 mainly include a provision made in the accounts receivable of the Ancon project for S/5.8 million, offset by the sale of the Line 1 stands business owned by Viva and the recovery of a tax in the Almonte Project.
Engineering and Construction
The table below sets forth selected financial information related to our E&C segment:
| Year ended December 31, | ||||||||||||||||
| 2023(1) | 2023 | 2022 | Variation | |||||||||||||
| (in US$ millions) | (in millions of S/) | % | ||||||||||||||
| Revenues | 714.7 | 2,653.5 | 2,679.2 | (1.0 | )% | |||||||||||
| Gross profit (loss) | 74.8 | 277.6 | (23.3 | ) | (1,291.6 | )% | ||||||||||
| Operating profit (loss) | 41.9 | 155.6 | (71.0 | ) | (319.2 | )% | ||||||||||
| (1) | Calculated based on an exchange rate of S/3.713 to US$1.00 as of December 31, 2023. |
Revenues. Our E&C revenues decreased 1.0%, or S/25.7 million, from S/2,679.2 million for 2022 to S/2,653.5 million for 2023. This is explained by the lower production volume in the projects under execution, mainly in Cumbra Peru for the Quellaveco project and in Vial and Vives-DSD for the MAPA project, which ended in 2022. This was partially offset in Cumbra Peru by the project with LAP for the construction of the new Jorge Chavez airport terminal and in Morelco by the Santa Monica project with Ecopetrol in Colombia.
The following tables set forth percentages of our E&C revenues by business activities, types of contracts and end-markets:
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| % | % | |||||||
| Engineering services | 7.5 | 4.1 | ||||||
| Electromechanic construction | 26.7 | 63.4 | ||||||
| Civil works | 65.4 | 31.2 | ||||||
| Building construction activities | - | 0.1 | ||||||
| Other services | 0.4 | 1.2 | ||||||
| Total | 100.0 | 100.0 | ||||||
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| % | % | |||||||
| Cost + fee | 1.5 | 1.3 | ||||||
| Unit price | 70.7 | 86.6 | ||||||
| Lump sum | 2.6 | 5.5 | ||||||
| EPC contracts | 25.2 | 6.7 | ||||||
| Total | 100.0 | 100.0 | ||||||
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| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| % | % | |||||||
| Mining | 35.9 | 58.4 | ||||||
| Real estate buildings | 0.4 | 0.1 | ||||||
| Power | 0.2 | 0.4 | ||||||
| Oil and gas | 26.1 | 9.4 | ||||||
| Infrastructure | 31.7 | 23.6 | ||||||
| Water and sewage | 0.0 | - | ||||||
| Other end markets | 5.6 | 8.2 | ||||||
| Total | 100.0 | 100.0 | ||||||
The breakdown of E&C revenues by different business activities, types of contracts and end-markets tends to vary from period to period due to a variety of factors, including the timing of the execution of larger projects in any particular period, which is typically outside of our control.
Gross Profit (loss). Our E&C gross profit increased S/300.8 million, from a gross profit loss of S/23.3 million for 2022 to a gross profit of S/277.6 million for 2023. Gross profit increased in 2023, increasing the area’s gross margin from –0.9% in 2022 to 10.5% in 2023. The higher gross profit recorded in 2023 was mainly due to the higher profit recorded in Cumbra Peru in the project with LAP for the construction of the new airport terminal and in Morelco for the Santa Monica project with Ecopetrol.
On the other hand, the lower profit recorded in 2022 was mainly due to: (i) the settlement agreement between Cumbra Peru and Técnicas Reunidas de Talara in relation to the Talara Refinery Modernization Project for which a loss of US$25 million was recorded and (ii) the provision of US$11.2 million due to the court decision that declared unfounded the claim filed by Cumbra Peru against EGEMSA in relation to the Machupicchu Hydroelectric Power Plant project of April 2009. Additionally, we recorded other impairments of US$4.6 million from the goodwill of Morelco and Vial y Vives and accounts receivable.
Other income (expenses). Other income (expenses) decreased in our E&C segment, from an operating income of S/79.1 million in income for 2022 to S/5.8 million in expenses for 2023. Other Operating Expenses in 2023 registered the adjustment of the provision for the INDECOPI fine in Cumbra Peru for S/4.0 million due to the update of the tax unit and tax contingencies of Cumbra Peru for S/3.0 million. 2022 registered the reversal of the provision for the plea agreement for S/43 million, due to the fact that the recording was made in the Holding Company, and the income from the sale of Cumbra Peru’s 43.3% interest in Viva to AENZA for US$12.7 million. Additionally, in 2022 an impairment of the brand in Vial and Vives-DSD for S/2.5 million was recorded.
Operating Profit (loss). Our E&C operating profit increased S/226.6 million, from an operating loss of S/71.0 million for 2022 to a S/155.6 million profit for 2023. Our E&C operating margin was 5.9% for 2022, compared to (2.7)% for 2022.
Financial (Expense) Income
In 2023, net Financial Expenses decreased by 31.2% vs. 2022, mainly due to the fact that 2022 includes the updated present value of the account receivable related to the Gasoducto Sur Peruano project (S/72.2 million). Also, in 2022 an interest expense was registered for an adjustment to fair value of the loan from BCI to Inversiones en Autopistas S.A. for S/16.6 million due to the increase in the discount rate. This last effect generated an interest income in 2023 of S/2.4 million due to the decrease in the discount rate.
The Exchange Difference is mainly explained by the devaluation of the Colombian peso.
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Income Tax Expense
Our Income tax expense increased S/64.3 million, from S/131.3 million for 2022 to S/195.6 million for 2023. The Corporation’s income tax differs from the theoretical amount that would result from applying the Corporation entities’ weighted average income tax rate applicable to consolidated pre-tax income. The theoretical tax disclosed results from applying the income tax rate in accordance with the tax legislation of the country where each company that is part of the Corporation is domiciled. In this regard, companies domiciled in Peru, Chile, and Colombia applied in 2023 and 2022 income tax rates of 29.5%, 27%, and 35%, respectively. Red Vial 5 S.A., Línea 1, Concesionaria Via Expresa Sur S.A., and Unna Energia (Blocks III and IV) have legal stability agreements signed with the Peruvian government in force during the term of the associated concessions. Therefore, the consolidated theoretical amount is obtained from weighing the profits or losses before income tax and the applicable income tax rate. See Note 28 to our audited annual consolidated financial statements included in this annual report.
(Loss) Profit from Continuing Operations
Our profit for the year increased S/503.2 million, from a S/362.1 million loss for 2022 to a S/141.1 million profit for 2023. Profit attributable to controlling interests increased S/535.8 million, while Profit attributable to non-controlling interest decreased S/32.6 million. For the year ended 2022, Other Operating Expenses at the end of 2022 registered the provision related to the Final Agreement on Settlement and Cooperation. In accordance with accounting standards, in previous quarters it had been recorded at discounted value. This provision is recorded in line with the signing of the Final Agreement on Settlement and Cooperation between the Company, the Attorney General’s Office and the Public Prosecutor’s Office in September 2022. Likewise, the total provision is recorded in AENZA, therefore in line with this, a provision was recorded in Holding (S/324.5 million), partially offset by the reversal of the provision in Cumbra Peru (S/41.7 million) and Unna Transporte (S/24.5 million). Additionally, Other Operating Expenses recorded a provision in the Chavimochic project for S/14.5 million for the impairment of the investment and the net effect in Cumbra Peru and Holding for the sale of Cumbra Peru’s 43.3% participation in Viva to AENZA.
Comparison of Results of Operations of 2021 and 2022
For information regarding the results of operations for the years ended December 31, 2021, and December 31, 2022, See “Item 5. Results of Operation–Comparison of Results of Operations of 2021 and 2022” in our Company’s annual report on Form 20-F for the fiscal year ended December 31, 2022.
B. Liquidity and Capital Resources
Our principal sources of liquidity have historically been equity capitalization, indebtedness, and cash flows from operating activities. Our principal uses of cash (other than in connection with our operating activities) have historically been capital expenditures in all our operating segments, servicing of our debt and other obligations, and payment of dividends.
We have faced, and continue to face, significant liquidity constraints as a result of the impacts of the corruptions investigations of our company and the COVID-19 pandemic. As of December 31, 2023, our cash and cash equivalents totaled S/1,003.9 million (US$270.4 million). As of February 29, 2024, our cash and cash equivalents totaled S/924.6 million (US$249.0 million). For more information, see Note 9 to our audited annual consolidated financial statements included in this annual report.
In December 2018, our company issued and sold a total of 69,380,402 common shares to certain of our company’s existing shareholders that exercised preemptive rights in accordance with Peruvian law and a private placement. Additionally, on April 2, 2019, our company issued and sold 142,483,633 common shares pursuant to a private placement, of which: (i) 55,291,877 shares were paid in full and (ii) 87,191,786 shares were paid 50% at the time, with the remaining 50% paid subsequently on July 1, 2019. In total, our company issued and sold 211,864,065 common shares, with the proceeds amounting to US$130 million being used to reduce debt, to pay our vendors and for working capital of one of our company’s subsidiaries.
On August 13, 2021, AENZA issued Convertible Bonds in a total principal amount of US$89.9 million. The Convertible Bonds matured in February 2024, beared interest at a rate of 8%, and were payable quarterly. The Convertible Bonds were convertible into shares as of the sixth month from the date of issuance. In accordance with the terms and conditions of the Convertible Bonds, holders of Convertible Bonds in a principal amount equivalent to US$11 million exercised their conversion rights and on February 28, 2022 we issued 37,801,073 new common shares. Additionally, holders of Convertible Bonds in a principal amount equivalent to US$78.9 million exercised their conversion rights and, on March 31, 2022, we issued an additional 287,261,051 new common shares. After these conversions, the Convertible Bonds were fully cancelled.
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On March 17, 2022, the Company entered into a bridge loan agreement for up to US$120 million (S/445.6 million), with a group of financial institutions comprised by Banco BTG Pactual S.A.–- Cayman Branch, Banco Santander Peru S.A., HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC, and Natixis, New York Branch. The financing is expected to be repaid in quarterly interest installments and is secured by two cash flow trusts (first lien), a pledge over the shares in Unna Energia S.A. (first lien), and a trust on the shares of Viva Negocio Inmobiliario S.A.C. (second lien). On October 5, 2023, the term extension of the repayment of the bridge loan agreement was signed for a period of twelve months payable in quarterly interest installments. In addition, on October 5, 2023, and December 27, 2023, payments of US$8 million (S/29.7 million) and US$12 million (S/44.6 million), respectively, were made under the bridge loan agreement. As of December 31, 2023, the loan amounted to US$100.0 million (S/371.9 million).
On September 15, 2022, we signed the Final Agreement on Settlement and Cooperation, pursuant to which we acknowledged that certain former directors and former senior managers have used the company to commit wrongdoings and, as a result, we have agreed to indemnify the Peruvian government for the resulting damages in the amount of S/488.9 million (S/ 333.3 million and US$ 40.7 million), which was calculated according to the formulae established by Law 30737. The Final Agreement on Settlement and Cooperation was approved by the Peruvian courts on August 11, 2023.
According to the Final Agreement on Settlement and Cooperation, payment of the indemnification shall be made within twelve years from December 2023 at a legal interest rate in Soles and U.S. dollars (3.55% and 1.9% annual interest as of December 31, 2022 and December 31, 2023, respectively). The Company also undertakes to establish a series of guarantees through a trust composed of (i) two trust agreements that include shares issued by Cumbra Ingeniería S.A., (ii) a trust on a property owned by the Company, and (iii) a guarantee account with funds equivalent to the annual installment for the following year. Among other conditions, the Agreement includes a restriction for AENZA and its subsidiaries Cumbra Peru and Unna Transporte to participate in public infrastructure and construction contracts, and road maintenance contracts for two years from the date of the approval of the Agreement. The other member companies of the Company are not subject to any impediment or prohibition to enter into contracts with the Peruvian government. On December 27, 2023, the indemnification payable under the Final Agreement on Settlement and Cooperation was paid to the Peruvian government in the amount of S/10.3 million and US$1.2 million. As of December 31, 2023, the Company maintains in its financial statements the total liability associated to the Final Agreement on Settlement and Cooperation in the amount of S/469.8 million (S/323 million and US$39.5 million).
On December 27, 2023, the Company issued 174,984,912 new common shares, at a price per share of S/0.4971 (US$23.4 million), increasing the Company’s capital stock from S/1,196.9 million to S/1,371.9 million. The total shares were fully subscribed and paid in two pre-emptive subscription rounds and in the private offering. US$20 million of the capital increase proceeds were used to repay the bridge loan. On February 15, 2024, the 174,984,912 common shares resulting from the capital increase were delivered to their holders.
The Company may face liquidity constraints if the Company is required to pay other civil or criminal penalties, or any additional settlement amounts, arising from future investigations or civil lawsuits facing the company, depending on the timing of those required payments.
Cash Flows
The table below sets forth certain components of our cash flows for 2021, 2022 and 2023.
| Year ended December 31, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| (in millions of S/) | ||||||||||||
| Net cash provided by (used in) operating activities | 194.5 | 33.7 | 358.8 | |||||||||
| Net cash provided by (used in) investing activities | (88.2 | ) | (198.2 | ) | (143.1 | ) | ||||||
| Net cash provided by (used in) financing activities | (50.4 | ) | 126.5 | (126.8 | ) | |||||||
| Net increase (net decrease) in cash | 55.9 | (38.0 | ) | 88.9 | ||||||||
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Cash Flow from Operating Activities
Net cash flow provided by operating activities in 2023 was higher than in 2022, due to the profit generated in 2023 and the collection of accounts receivable that have allowed us to pay suppliers and execute other operational obligations.
Cash Flow from Investing Activities
Net cash flow used in investing activities in 2023 was lower than in 2022, mainly to lower development of wells in Unna Energía S.A. for S/40 million compared to 2022.
Cash Flow from Financing Activities
Net cash flow used in financing activities in 2023 was lower than in 2022. The bridge loan obtained in 2022 was refinanced, with a prepayment of US$20 million as a condition. Additionally, in 2023, the Company executed a capital increase process for S/87 million, which was used to prepay the bridge loan.
Indebtedness
As of December 31, 2023, we had a total outstanding indebtedness of S/1,645.6 million (US$443.2 million) as set forth in the table below.
| Debt Amount | Total in | Total in | Weighted average | Range
of Maturity Dates | ||||||||||||||||||||||||||||||
| Segment | Type | (in millions of US$) | (in millions of S/) | (in millions of CLP)(1) | (in millions of COP) | millions of S/ | millions of US$ | interest rate | Minimum | Maximum | ||||||||||||||||||||||||
| Infrastructure | Leasing | 3.4 | - | - | - | 12.5 | 3.4 | 11.3 | % | 30/04/2024 | 30/04/2024 | |||||||||||||||||||||||
| Long term loan | - | 808.5 | - | - | 808.5 | 217.7 | 9.0 | % | 23/01/2027 | 25/11/2039 | ||||||||||||||||||||||||
| Promissory Note | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Energy | Leasing | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Long term loan | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Promissory Note | 31.2 | - | - | - | 116.0 | 31.2 | 6.9 | % | 26/11/2026 | 15/11/2028 | ||||||||||||||||||||||||
| E&C | Leasing | - | - | 457.1 | - | 1.9 | 0.5 | 13.5 | % | 05/03/2025 | 05/03/2025 | |||||||||||||||||||||||
| Promissory Note | 3.9 | - | - | 16,685.1 | 30.7 | 8.3 | 13.2 | % | 28/02/2024 | 11/12/2027 | ||||||||||||||||||||||||
| Real Estate | Leasing | 0.4 | - | - | - | 1.5 | 0.4 | 7.9 | % | 27/04/2024 | 27/04/2024 | |||||||||||||||||||||||
| Promissory Note | 19.9 | 8.0 | - | - | 81.8 | 22.0 | 8.3 | % | 19/01/2024 | 15/11/2032 | ||||||||||||||||||||||||
| Corporate | Long term loan | 148.2 | - | - | - | 550.2 | 148.2 | 13.7 | % | 05/10/2024 | 31/02/2024 | |||||||||||||||||||||||
| Eliminations / IFRS 16 | 42.6 | 42.6 | 11.5 | |||||||||||||||||||||||||||||||
| Total | 207.0 | 859.1 | 457.1 | 16,685.1 | 1,645.7 | 443.2 | ||||||||||||||||||||||||||||
| (1) | Includes debt held by Vial y Vives—DSD that is denominated in Chilean pesos. |
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The following table sets forth our contractual obligations with payment terms as of December 31, 2023.
| Payments Due By Period (in millions of S/) | ||||||||||||||||||||
| Less than 1 year | 1-2 years | 3-5 years | More than 5 Years | Total | ||||||||||||||||
| Indebtedness(1) | 583,458 | 206,168 | 292,300 | 521,144 | 1,603,070 | |||||||||||||||
| Right-of-use-liabilities | 14,109 | 20,046 | 8,334 | 73 | 42,562 | |||||||||||||||
| Interest(2) | 129,017 | 139,416 | 217,507 | 157,941 | 643,881 | |||||||||||||||
| Total(2) | 726,584 | 365,630 | 518,141 | 679,158 | 2,289,513 | |||||||||||||||
| (1) | Includes current and non-current Borrowings and Bonds less Right-of-use-liabilities. |
| (2) | Includes the future interests of current and non-current Borrowings and Bonds. |
Set forth below is a description of our material outstanding indebtedness as of December 31, 2023.
Norvial Corporate Bonds. In July 2015, Norvial established its first corporate bond program on the Lima Stock Exchange (Bolsa de Valores de Lima, or “BVL”), for a total amount of S/365.0 million (US$98.3 million). The first tranche under this program was issued for an amount of S/80.0 million, due 2020 with an annual interest rate of 6.75%. The second tranche was issued for an amount of S/285.0 million, due 2027 with an annual interest rate of 8.375%, structured in three disbursements. In July 2015 we received the first disbursement for S/105.0 million, in January 2016 we received the second disbursement for S/100.0 million and in July 2016 we received the third disbursement of S/80.0 million. These bonds are secured by: (i) a trust over certain cash flows; (ii) a mortgage on the Norvial concession; (iii) a lien over Norvial shares; (iv) the assignment of Norvial’s rights over a performance bond provided by Cumbra Peru and JJC Contratistas Generales S.A.; and (v) any additional guarantees granted in favor of other secured creditors. The proceeds of these bonds were used to pay S/85 million of debt outstanding under a short-term loan agreement with Banco de Crédito del Peru (BCP) for a total S/150 million, and the remaining balance was used to finance the construction of the second stage of Ancon – Huacho Pativilca highway and the value added tax linked to the implementation of the project expenses. As of December 31, 2023, Norvial had S/180.1 million (US$48.5 million) outstanding under these bonds.
Linea 1 Senior Secured Notes. On February 2015, Línea 1 issued a total of S/629.0 million (US$184.3 million) Series A Senior Secured VAC-Indexed Notes due 2039, with an annual interest rate of 4.75% plus adjustments for inflation. The bonds are secured by (i) a mortgage on the Lima Metro concession, (ii) a lien on Línea 1 shares, (iii) a lien on certain collection rights, (iv) a lien on certain accounts and (v) a cash flow trust. The proceeds from the issuance were used to repay a short-term loan provide by Banco de Crédito del Peru-BCP for S/400 million, funding of the reserve accounts, payment of the issuance expenses, and for the partial repayment of a subordinated loan provided by certain shareholders of Línea 1 to Línea 1. According to the indenture, in order to make any payment of a subordinated loan or distribute any dividends, our Debt Service Coverage Ratio (as defined therein) should be at least 1.2x. Under the indenture Línea 1 has to fund the debt service reserve account on a quarterly basis with the equivalent of the amounts due in the next two succeeding interest payment dates. Moreover, the operation and maintenance reserve account must be funded annually with an amount equal to twenty-five percent (25%) of operation and maintenance costs of the corresponding current annual budget. As of December 31, 2023, Línea 1 had S/628.4 million (US$169.2 million) outstanding under these notes.
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BCP Loan. Terminales del Peru (“TP”), a joint operation of the subsidiary Unna Energia S.A., has a medium-term loan agreement with Banco de Credito del Peru S.A. (“BCP”) to finance investments arising from the operation agreement of North and Center terminals for 2015 to 2019 period, ending its availability period on December 31, 2022, with a maximum exposure limit of US$80 million. This funding was repaid over a period of eight years for a credit line of US$100 million, which was authorised and fully utilized.
In addition, in November 2019, TP signed a loan agreement to finance the additional investments from 2019 to 2023 for a credit line of US$ 46 million with BCP. This agreement includes an assignee as interest holder, so BD Capital (BDC) acquired 50% of the BCP contractual position through the signature of an accession agreement. During 2023, additional disbursements of US$ 13.5 million, equivalent to S/ 50.9 million, were requested for the additional investments. On December 20, 2023, an addendum was signed to extend the period of availability until November 15, 2024.
As of December 31, 2023, the amount recorded for the loans equivalent to the 50% interest held by the subsidiary Unna Energia S.A. was S/116 million, which includes principal plus interest and net deferred charges (S/126.1 million as of 31 December 2022).
As of December 31, 2023, TP is in compliance with the covenants established in the loan agreement.
Financial Stability Framework Agreement.
In July 2017, the Company and its subsidiaries (Cumbra Peru, Construyendo País S.A., Vial y Vives – DSD and Concesionaria Vía Expresa Sur S.A.) signed a Financial Stability Framework Agreement with the following financial institutions: Scotiabank Perú S.A., Banco Internacional del Perú S.A.A., Banco BBVA Perú S.A., Banco de Crédito del Perú S.A., Citibank del Perú S.A. and Citibank N.A. The objectives of the Financial Stability Framework Agreement were: to guarantee Cumbra Peru a syndicated revolving line of credit for working capital, a non-revolving line of credit to finance repayment commitments subject to performance bonds; to guarantee lines of credit for the issuance of performance bonds and to commit to maintain the existing letters of credit issued to Cumbra Peru’s requirements.
At December 31, 2023, the Company was in compliance with the obligations and covenants established in the Financial Stability Framework Agreement.
On March 29, 2022, S/28.2 million and US$0.3 million corresponding to the total balance of the direct debt of the Financial Stability Framework Agreement (US$ 7.4 million, equivalent to S/29.5 million, as of December 31, 2021) were paid, and the line of credit for the issuance of letters of guarantee remains in place.
Currently, the facility has been extended up to September 30, 2024, and there is an outstanding debt of US$7.5 million corresponding to the drawing of the Chavimochic Project bond, of which AENZA has a 26.50% minority stake, with a maturity term similar to the maturity of the Financial Stability Framework Agreement. The use of proceeds of the Chavimochic Project bond will serve to prepay this outstanding debt.
Bridge Loan. On March 17, 2022, the Company entered into a bridge loan agreement for up to US$120 million (S/445.6 million), with a group of financial institutions comprised by Banco BTG Pactual S.A. - Cayman Branch, Banco Santander Peru S.A., HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC, and Natixis, New York Branch. The financing was expected to be repaid in quarterly interest installments and is secured by two cash flow trusts (first lien), a pledge over the shares in Unna Energia S.A. (first lien), and a trust on the shares of Viva Negocio Inmobiliario S.A.C. (second lien). On October 5, 2023, the term extension of the repayment of the bridge loan agreement was signed for a period of twelve months payable in quarterly interest installments. In addition, on October 5, 2023, and December 27, 2023, payments of US$8 million (S/29.7 million) and US$12 million (S/44.6 million), respectively, were made under the bridge loan agreement. As of December 31, 2023, the loan amounted to US$100 million (S/371.3 million).
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BID. In December 2022, Viva Negocio Inmobiliario S.A.C. entered into a US$20 million (S/76.4 million) loan agreement with the Banco Interamericano de Desarollo, with a ten (10) year term and a two (2) year grace period for principal repayment, with the purpose of building social housing. The loan was fully disbursed in January 2023. As of December 31, 2023, the loan balance payable amounted to US$20.2 million, equivalent to S/73.8 million, comprising principal of S/74.3 million, plus interest of S/0.7 million and the negative effect of deferred charges of S/1.2 million.
As of December 31, 2023, this financing is subject to the following guarantees and covenants:
| ● | a financial debt ratio over EBITDA equal to or below 3.5x; |
| ● | an EBITDA ratio over financial expenses equal to or greater than 2.0x; |
| ● | a ratio of total liabilities over equity equal to or below 1.5x; and |
| ● | a guarantee coverage ratio equal to or greater than 120% of the loan amount through a collateral trust for the properties, which realization value (determined in accordance with the provisions of the trust agreement) may not be less than 80% of the loan balance. |
As of December 31, 2023, this financing was subject to a collateral trust on (i) land located at Calle David Samanez Ocampo N° 140, district of San Isidro, Lima, Peru and (ii) land and buildings located in Lot No. 1 of Block “H”, Los Parques de El Agustino urbanization, district of El Agustino, Lima, Peru.
Derivative Financial Instruments
The company does not currently have any derivative financial instruments outstanding. For additional information about our derivative financial instruments and borrowings, see Notes 2F, 17, and 18 to our audited annual consolidated financial statements included in this annual report.
Capital Expenditures
The table below provides our total capital expenditures incurred in 2021, 2022 and 2023.
| 2021 | 2022 | 2023 | ||||||||||||||||||||||||
| (in millions of S/) | (in millions of US$) | (in millions of S/) | (in millions of US$) | (in millions of S/) | (in millions of US$) | |||||||||||||||||||||
| Infrastructure | Capital expenditure | 6.6 | 1.7 | 8.7 | 2.3 | 7.7 | 2.1 | |||||||||||||||||||
| Total Infrastructure | 6.6 | 1.7 | 8.7 | 2.3 | 7.7 | 2.1 | ||||||||||||||||||||
| Energy | Capital expenditure | 68.9 | 17.2 | 198.0 | 51.8 | 174.0 | 46.9 | |||||||||||||||||||
| Total Energy | 68.9 | 17.2 | 198.0 | 51.8 | 174.0 | 46.9 | ||||||||||||||||||||
| Real Estate | Capital expenditure | 0.2 | 0.1 | 3.6 | 0.9 | 1.0 | 0.3 | |||||||||||||||||||
| Total Real Estate | 0.2 | 0.1 | 3.6 | 0.9 | 1.0 | 0.3 | ||||||||||||||||||||
| E&C | Capital expenditure | 28.7 | 7.2 | 17.8 | 4.6 | 19.5 | 5.3 | |||||||||||||||||||
| Total E&C | 28.7 | 7.2 | 17.8 | 4.6 | 19.5 | 5.3 | ||||||||||||||||||||
| Corporate | Capital expenditure | 2.1 | 0.5 | - | - | - | - | |||||||||||||||||||
| Total Corporate | 2.1 | 0.5 | - | - | - | - | ||||||||||||||||||||
| TOTAL | 106.5 | 26.6 | 228.0 | 59.7 | 202.2 | 54.5 | ||||||||||||||||||||
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Capital expenditures for our Infrastructure segment of S/6.6 million (US$ 1.7 million), S/8.7 million (US$2.3 million) and S/7.7 million (US$2.1 million) in 2021, 2022 and 2023, respectively, correspond to periodic maintenance and the construction of the second stage of our Norvial toll road concession and investments in the Lima Metro.
Capital expenditures for our Energy business of S/68.9 million (US$17.2 million), S/198.0 million (US$51.8 million) and S/174.0 million (US$46.9 million) in 2021, 2022 and 2023, respectively, correspond to oil development drilling activities as well as improvements for our gas processing plant.
Capital expenditures for our Real Estate segment of S/0.2 million (US$0.1 million), S/3.6 million (US$ 0.9 million) and S/1.0 million (US$0.3 million), in 2021, 2022 and 2023, respectively, which amounts correspond to building facilities.
Capital expenditures for our E&C segment of S/28.7 million (US$7.2 million), S/17.8 million (US$4.7 million) and S/19.5 million (US$5.3 million), in 2021, 2022 and 2023, respectively, which amounts primarily correspond to the purchase and sale of equipment and machinery. (Capital investments in the E&C segment also included minor repositions of equipment and machinery).
We have budgeted S/288.0 million (US$75.7 million) in capital expenditures for 2024. Our current plan for our Infrastructure segment contemplates capital expenditures in 2024 of S/40.7 million (US$11.0 million), principally for investments in activities for Line 1 of the Lima Metro. Our current plan for our Energy business contemplates capital expenditures in 2024 of S/186.2 million (US$50.1 million), principally for investments in oil drilling. Our current plan for our Real Estate segment contemplates capital expenditures in 2024 of S/49.6 million (US$13.4 million), principally for land purchases. Our current plan for our E&C segment contemplates capital expenditures in 2024 of S/3.0 million (US$0.8 million), mainly to replace of equipment and machinery. Our current plan for our Corporate segment contemplates no expenditures or divestitures in 2023.
These estimates are subject to change. We routinely evaluate acquisitions, new infrastructure concessions, land purchases and other investment or divestiture opportunities that are aligned with our strategic goals, particularly in Peru, Chile and Colombia. We cannot assure you that we will find opportunities on terms that we consider to be favorable to us, whether we will be able to take advantage of such opportunities should they arise, or the timing of and funds required by such opportunities. In addition, should we undertake any such investments, we expect to finance these opportunities with a combination of cash on hand, new borrowings and/or financial contributions from partners, depending on a variety of commercial considerations at such time. See “Part I. Forward-Looking Statements.”
C. Research and Development, Patents and Licenses, Etc.
Not applicable.
D. Trend Information
Our Main Market: Peru
The following sets forth key macroeconomic trends in our markets, Peru, Chile, and Colombia. For additional information on trends in our business, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting our Results of Operations” and “Item 4.B. Business Overview—Backlog.”
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Overview of the Peruvian Economy
The following table sets forth the main economic indicators of the Peruvian economy from 2019 to 2023:
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||
| Nominal GDP (US$ billions) | 232.4 | 205.6 | 225.9 | 244.8 | 268.0 | |||||||||||||||
| Nominal GDP / capita (US$) | 7,234.3 | 6,300.3 | 6,837.0 | 7,328.7 | 7,946.6 | |||||||||||||||
| Real GDP growth rates (% based on local currency GDP) | 2.2 | % | (11.0 | )% | 13.6 | % | 2.7 | % | (0.6 | )% | ||||||||||
| Private consumption growth rate | 3.2 | % | (9.9 | )% | 12.4 | % | 3.6 | % | 0.1 | % | ||||||||||
| Private investment growth rate | 4.5 | % | (16.5 | )% | 37.4 | % | (0.5 | )% | (7.2 | )% | ||||||||||
| Foreign direct investment growth rate | (18.7 | )% | (86.1 | )% | 976.6 | % | 56.8 | % | 65.0 | % | ||||||||||
| Public expenditure (consumption and investment) growth rate | 2.2 | % | 7.8 | % | 10.6 | % | (3.4 | )% | 3.3 | % | ||||||||||
| Total private and public fixed investment growth rate(1) | 3.3 | % | (16.2 | )% | 35.0 | % | 0.9 | % | (5.6 | )% | ||||||||||
| Exports growth rate | 1.1 | % | (19.6 | )% | 13.7 | % | 5.4 | % | 3.7 | % | ||||||||||
| Imports growth rate | 1.0 | % | (15.8 | )% | 18.4 | % | 4.0 | % | (0.9 | )% | ||||||||||
| Inflation (measured by change in CPI) | 1.9 | % | 2.0 | % | 6.4 | % | 8.5 | % | 3.2 | % | ||||||||||
| Average exchange rate (S//US$) | 3.34 | 3.50 | 3.90 | 3.9 | 3.74 | |||||||||||||||
| End of period exchange rate (S//US$) | 3.32 | 3.62 | 4.00 | 3.82 | 3.71 | |||||||||||||||
| Central Bank interest rate (end of period) | 2.3 | % | 0.3 | % | 2.5 | % | 7.5 | % | 6.8 | % | ||||||||||
| Population (million)(1) | 32.1 | 32.6 | 33.0 | 33.4 | 33.7 | |||||||||||||||
| Unemployment rate(1) | 6.1 | % | 13.8 | % | 7.8 | % | 7.1 | % | 6.4 | % | ||||||||||
| Total public debt (US$ billions) | 62.2 | 68.8 | 78.8 | 83.5 | 88.6 | |||||||||||||||
| Public debt/nominal GDP (%) | 26.7 | % | 33.5 | % | 34.9 | % | 34.1 | % | 33.1 | % | ||||||||||
| Net reserves (US$ billions) | 68.3 | 74.7 | 78.5 | 71.9 | 71.0 | |||||||||||||||
| Net reserves/nominal GDP (%) | 29.4 | % | 36.3 | % | 34.8 | % | 29.4 | % | 26.5 | % | ||||||||||
| Fiscal surplus (deficit)/ nominal GDP (%) | (1.6 | )% | (8.9 | )% | (2.5 | )% | (1.6 | )% | (2.8 | )% | ||||||||||
Source: Peruvian Central Bank, SBS, Ministry of Economy and Finance, National Statistical Institute of Peru (INEI), IMF.
| (1) | 2023 projected by IMF. |
The following table sets forth real gross domestic product by expenditure for the years indicated.
| GDP by Expenditure (% of GDP unless otherwise stated) | 2019 | 2020 | 2021 | 2022 | 2023 | |||||||||||||||
| Government consumption | 11.5 | 13.8 | 12.9 | 12.5 | 12.7 | |||||||||||||||
| Private consumption | 65.5 | 64.7 | 62.1 | 64.9 | 64.6 | |||||||||||||||
| Total fixed investment | 22.5 | 21.1 | 25.2 | 25.4 | 22.9 | |||||||||||||||
| Public sector | 4.6 | 4.3 | 4.7 | 5.1 | 5.0 | |||||||||||||||
| Private sector | 18.0 | 16.8 | 20.5 | 20.3 | 17.9 | |||||||||||||||
| Change in inventories(1) | (0.7 | ) | (1.3 | ) | (3.5 | ) | (3.3 | ) | (3.7 | ) | ||||||||||
| Exports of goods and services | 24.0 | 24.4 | 32.4 | 27.1 | 25.9 | |||||||||||||||
| Imports of goods and services | 21.6 | 20.4 | 27.2 | 26.1 | 23.6 | |||||||||||||||
| Net exports | 2.5 | 4.0 | 5.2 | 0.4 | 2.3 | |||||||||||||||
| GDP (in billions of US$) | 232.4 | 205.6 | 225.9 | 224.8 | 268.0 | |||||||||||||||
Source: Peruvian Central Bank
| (1) | Defined as the difference between the volume at the end of the period and the volume at the beginning of the period; valued at the average price over the period. |
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Key Industry Sectors Relating to Our Business in Peru
Construction and Infrastructure
The Peruvian construction industry’s nominal GDP is estimated to be US$9.6 billion and accounted for 3.6% of the country’s nominal GDP in 2023, according to the Peruvian Central Bank. The following table illustrates, from 2019 to 2023, the average real growth rate in both private investment and construction in Peru vis-à-vis the average real GDP growth rate.
Growth of Real Private Investment GDP and Real Construction Sector GDP vs. Real GDP
Source: Peruvian Central Bank.
Mining
Peru is a poly-metallic resources producer and exports several metals including silver, copper, zinc, gold and lead, among others. Peru is also a major contributor to global metal reserves. According to the U.S. Geological Survey of 2024, as of May 2024, Peru held 18.0% of global silver reserves, 9.5% of global zinc reserves, 12.0% of global copper reserves and 3.9% of global gold reserves. According to the Peruvian Central Bank, mining exports reached US$44.0 billion and represented 62.8% of total Peruvian exports in 2023.
As of March 2023, the Peruvian Ministry of Energy and Mines estimates 51 mining projects at various stages of development involving an estimated investment of US$54.556 billion.
Mining Investment Projects by Level of Development
| Number of Projects | US$ billion | |||||||
| Under construction | 6 | 4,458 | ||||||
| Detailed Engineering | 4 | 4,609 | ||||||
| Feasibility | 17 | 16,283 | ||||||
| Pre-feasibility | 24 | 29,206 | ||||||
| Total | 51 | 54,556 | ||||||
Source: Peruvian Ministry of Energy and Mines.
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Oil and Gas
According to the Peruvian Ministry of Energy and Mines, during 2023, local production of petroleum was 38.7 Mbbl per day, 4.5% more than 2022. The Peruvian Ministry of Energy and Mines reported that oil and gas proved reserves as of December 31, 2022 were 2,030.1 MMBOE. The oil and gas proved reserves as of December 31, 2023 have not yet been published. The Peruvian government’s reserves methodology may differ materially from the one mandated by the SEC.
Hydrocarbons Proved Reserves and Production Evolution in Peru (in MMboe)
Source: Peruvian Ministry of Energy and Mines
Our Other Markets: Chile and Colombia
Chile
Overview of the Chilean Economy
Our activities in Chile span across the E&C and power services sectors. The following table sets forth the main economic indicators of the Chilean economy for the period from 2019 to 2023.
| Values in nominal US$ billion unless otherwise stated | 2019 | 2020 | 2021 | 2022 | 2023 | |||||||||||||||
| Nominal GDP | 278.7 | 252.9 | 317.0 | 301.0 | 335.9 | |||||||||||||||
| Nominal GDP / capita (US$) | 14,600.8 | 13,029.3 | 16,099.0 | 15,202.7 | 16,832.9 | |||||||||||||||
| Real GDP growth rate (%) | 1.1 | % | (5.8 | )% | 12.0 | % | 2.4 | % | 0.2 | % | ||||||||||
| Inflation (%, measured by change in CPI) | 3.0 | % | 3.0 | % | 7.2 | % | 12.8 | % | 3.9 | % | ||||||||||
| Total private and public fixed investment | 68.4 | 58.2 | 76.0 | 74.7 | 80.1 | |||||||||||||||
| Average exchange rate (CLP/US$) | 702.6 | 792.2 | 759.1 | 872.3 | 839.1 | |||||||||||||||
| End of period exchange rate (CLP/US$) | 770.4 | 734.7 | 849.1 | 875.7 | 874.7 | |||||||||||||||
| Population (million)(1) | 19.1 | 19.5 | 19.7 | 19.8 | 19.7 | |||||||||||||||
| Unemployment rate | 7.1 | % | 10.3 | % | 7.2 | % | 7.9 | % | 8.5 | % | ||||||||||
| Public Debt / nominal GDP (%)(2) | 28.3 | % | 32.5 | % | 36.3 | % | 39.1 | % | 39.4 | % | ||||||||||
| Net reserves / nominal GDP (%) | 14.6 | % | 15.5 | % | 16.2 | % | 13.0 | % | 13.8 | % | ||||||||||
| Fiscal surplus (deficit) / nominal GDP (%) | (2.7 | )% | (7.1 | )% | (7.5 | )% | 1.4 | % | (2.3 | )% | ||||||||||
Source: Chilean Central Bank, Chilean Government Budget Office, IMF, Global Insight
| (1) | 2023 and 2024 projected by the IMF |
| (2) | 2023 data presented as of September 30, 2023. |
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Colombia
Overview of the Colombian Economy
Our current activities in Colombia involve technical services provided primarily to the power services sector. The following table sets forth the main economic indicators of the Colombian economy for the period from 2019 to 2023.
| Values in nominal US$ billion unless otherwise stated | 2019 | 2020 | 2021 | 2022 | 2023 | |||||||||||||||
| Nominal GDP | 323.1 | 270.4 | 314.5 | 344.0 | 363.6 | |||||||||||||||
| Nominal GDP / capita (US$) | 6,540.7 | 5,368.2 | 6,160.8 | 6,665.5 | 6,964.0 | |||||||||||||||
| Real GDP growth rate (%) | 3.2 | % | (7.0 | )% | 10.7 | % | 7.5 | % | 0.6 | % | ||||||||||
| Inflation (%, measured by change in CPI) | 3.8 | % | 1.6 | % | 5.6 | % | 13.1 | % | 9.3 | % | ||||||||||
| Average exchange rate (COP/US$) | 3,281.4 | 3,693.3 | 3,744.2 | 4,256.2 | 3,951.4 | |||||||||||||||
| End of period exchange rate (COP/US$) | 3,277.1 | 3,432.5 | 3,981.2 | 4,810.2 | 3,822.1 | |||||||||||||||
| Population (million)(1) | 49.4 | 50.4 | 51.0 | 51.6 | 52.2 | |||||||||||||||
| Unemployment rate(1) | 9.9 | % | 13.9 | % | 11.1 | % | 9.5 | % | 10.0 | % | ||||||||||
| Public Debt / nominal GDP (%) | 22.9 | % | 33.2 | % | 32.6 | % | 29.3 | % | 31.1 | % | ||||||||||
| Net reserves / nominal GDP (%) | 16.4 | % | 21.8 | % | 18.6 | % | 16.6 | % | 16.4 | % | ||||||||||
| Fiscal surplus (deficit) / nominal GDP (%)(2) | (2.4 | )% | (7.6 | )% | (7.3 | )% | (0.7 | )% | (0.4 | )% | ||||||||||
| Source: | Colombian National Department of Administration of Statistics (DANE), Colombian Central Bank, Colombian Treasury Department, IMF, Global Insight |
| (1) | 2023 projected by the IMF. |
E. Critical Accounting Estimates
For information on critical accounting estimates and judgments, see Note 5 to our audited annual consolidated financial statements included in this annual report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
General
Our business and affairs are managed by our Board of Directors in accordance with our by-laws, shareholder’s meeting rules of procedure, Board of Directors’ rules of procedure, internal rules of conduct and Peruvian Corporate Law No. 26887 (as amended, “Peruvian Corporate Law”). Our bylaws provide for a Board of Directors of between five and nine members.
Directors are elected at a shareholders’ meeting and hold office for three years. Directors may be elected to multiple terms. Our current Board of Directors is composed of nine directors and no alternates. If a director resigns or otherwise becomes unable to continue with its duties, a majority of our directors may appoint one of the alternate directors, or in the absence of alternate directors, any other person, to serve as director for the remaining term of the board. In the first board meeting held after the annual shareholders’ meeting where members of the board are elected, the Board of Directors must elect among its members a chairman and a vice chairman if the shareholders’ meeting did not elect them.
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The Board of Directors typically meets monthly, when called by any director or our Chairman. Resolutions must be adopted by a majority of the directors present at the meeting and the chairman is entitled to cast the deciding vote in the event of a tie.
Duties and Liabilities of Directors
Pursuant to Article 177 of Peruvian Corporate Law, directors are jointly and severally liable to the corporation, its shareholders and third parties for any damages caused by board decisions or acts that breach the law or the bylaws of the company, or for damages caused by abuse of power, fraud, willful misconduct or gross negligence.
In addition, pursuant to Article 3 of Law No. 29720, as amended, directors of companies with common shares listed on the Lima Stock Exchange are liable to the company and its shareholders for damages caused by resolutions which are favorable to their individual interest (or the interest of a related party) to the detriment of the company’s interest if: (i) the listed company is a party to the transaction; (ii) the controlling shareholder of the listed company controls the legal entity acting as counterparty; (iii) the transaction is not carried out on an arm’s length basis; and (iv) at least 10% of the listed company’s assets are involved in the transaction.
A director cannot be found liable for a board decision or act if they did not participate in the meeting where the corresponding decision was taken or if the director’s express disagreement is noted in the minutes of such meeting or evidenced by notarized notice.
Article 180 of the Peruvian Corporate Law requires a director to abstain from: (i) adopting decisions that would not be in the corporation’s interest and that would benefit their interests or those of any related third party, (ii) using for themselves any commercial opportunity or business they became aware of as a result of the exercise of their duties as a director and (iii) participating themselves in competition with the company in any matter that would require disclosure and abstention due to a conflict of interest. A director who violates these requirements is liable for any damages caused to the company and may be removed by a majority of the Board of Directors or, upon the request of any member of the board or of any shareholder, by a majority vote of the shareholders.
Pursuant to Article 181 of the Peruvian Corporate Law, shareholders are entitled to protect the interest of a company by bringing a claim of civil responsibility against any directors, subject to approval of shareholders at a duly convened shareholders’ meeting. However, Article 4 of Law No. 29,720, with respect to companies listed on the Lima Stock Exchange, establishes that a shareholder that owns at least 10% of the capital stock is entitled to file a claim of civil responsibility under Article 181 of the Peruvian Corporate Law without holding a prior shareholders’ meeting.
Additionally, Legal Decree No. 1121 and Legal Decree No. 1422 (both governing the application of Rule XVI of the Peruvian Tax Code regarding anti-evasion conduct) require the Board of Directors of Peruvian companies to review any tax planning strategy in respect of the prior fiscal year, and to re-authorize, amend or dissolve the same. If the Board of Directors do not comply with these rules, the Peruvian tax authority (SUNAT) may hold the directors jointly liable with the company.
Sections 2 and 13 of article 16 of the Peruvian Taxation Code also establish that directors will be jointly liable with the company and with each other if the company does not pay its taxes due to willful misconduct (dolo), gross negligence (culpa grave) or abuse of power of attorney in breach of anti-tax evasion laws.
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Board of Directors
The following sets forth our directors and their respective positions as of the date of this annual report.
On September 20, 2021, an extraordinary shareholders’ meeting of the company elected a new board of directors, consisting of nine directors, four of whom were not previously directors of the company. The term of the current board of directors is three years and expires in September 2024.
| Name | Position | Year of Birth |
Year
of First Appointment | |||
| Juan Vicente Revilla Vergara | Chairman of the Board | 1961 | 2021 | |||
| Gustavo Nickel Buffara De Freitas | Vice Chairman of the Board | 1983 | 2021 | |||
| Esteban Viton Ramirez | Director | 1952 | 2019 | |||
| Gema Esteban Garrido | Director | 1971 | 2021 | |||
| Julio Dittborn Chadwick | Director** | 1982 | 2022 | |||
| Pablo Kühlenthal Becker | Director | 1980 | 2021 | |||
| Antonio Carlos Valente Da Silva | Director (Independent)* | 1952 | 2020 | |||
| Carlos Rojas Perla | Director (Independent)* | 1971 | 2020 | |||
| Santiago Hernando Perez | Director (Independent)* | 1963 | 2020 |
| * | Independent under the Exchange Act independence standards. |
| ** | On March 31, 2022, our Board of Directors appointed Mr. Julio Dittborn Chadwick to replace Mr. Nicolas Bañados Lyon, who resigned from his position as Director for personal reasons. |
The following sets forth selected biographical information for each of the members of our Board of Directors. The business address of each of our current directors is Av. Petit Thouars 4957, Miraflores, Lima 15046, Peru.
Juan Vicente Revilla Vergara. Mr. Revilla was appointed as a director of the company in September of 2021. He holds a degree as an economist from the Universidad del Pacífico (Peru). He has been a Managing Director and Head of Investments for Southern Europe at IG4 Capital since June 2020 and Founding Partner and CEO of High Trend International, LLC. Before that, he was CEO of Telefonica International Wholesale Services, General Director of Resources for Telefonica Brazil, Global Manager of Shared Services for the Telefónica Group, CEO of Latin American Operations for the Telefónica Group, Chief Technology Officer for Latin America for the Telefónica Group, CEO of Telefónica del Peru, Chief Procurement Officer of the Telefónica Group and CFO of Telesp.
Gustavo Nickel Buffara De Freitas. Mr. Buffara was appointed as a director of the company in September of 2021. He holds a degree of Bachelor of Public Administration from the Fundacao Getulio Vargas Sao Paolo School of Business Administration and MBA from the International Institute for Management Development in Lausanne, Switzerland. He has been the Chief Financial Officer and co-Founder of IG4 Capital since 2016 and before that he was Senior Director and Managing Director of RK Partners, Deputy Director of GP Investments, Senior Consultant of Bain & Company and Manager of Economic Regulation and Regulation of Telefónica.
Esteban Viton Ramirez. Mr. Viton was appointed as a director of the company in May 2019. He holds degrees as an economist engineer from the Universidad Nacional de Ingeniería (Peru), a Master’s degree from ESAN Graduate School of Business (Peru), a MsM from the Arthur D Little School of Management (now Hult International Business School), has completed the advanced management program at Harvard University and has completed studies at PAD, INSEAD and others. He is the general manager and director of Pacific Energy and has been a manager of Quimpac and other local companies, as well as other companies in the region. He has been a director of Kallpa and Cerro del Águila.
Gema Esteban Garrido. Ms. Esteban was appointed as a director of the company in September of 2021. She holds a degree in Computer Engineer from the Pontifical University of Salamanca with a Master’s Degree in Finance from the Center for Financial Studies, Master’s Degree in Strategic Marketing from the ESIC and graduated from multiple specialization courses at international universities such as MIT and the University of Geneva. She is the Global ESG Manager of IG4 Capital, responsible since February 2021 for ensuring the sustainability of the Group’s investments from an environmental, social and corporate governance perspective and before that she was Director of ESG Investments at Telefónica between June 2018 and February 2021 and since 2001 she has held various management positions in said corporation related to global operations strategy and digital transformation strategy, among other important matters.
Julio Dittborn Chadwick. Mr. Dittborn was appointed as director of the company in March 2022. He is a Commercial Engineer from the Pontificia Universidad Catolica de Chile and MBA from The Wharton Business School of the University of Pennsylvania. He is Managing Director of the Private Equity team of Inversiones Megeve, family office of the Solari Donnagio family. Mr. Dittborn is also a director and leads several companies in Latin America, particularly in the real estate, forestry and energy sectors.
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Pablo Kühlenthal Becker. Mr. Kühlenthal was appointed as a director of the company in August 2021. He holds a degree in Industrial Engineer in Logistics and Transportation from the Pontificia Universidad Católica de Chile and MBA from the International Institute for Management Development in Lausanne, Switzerland. He is a partner and founder of the Santiago de Chile office of IG4 Capital and has been responsible since 2019 for investments in Latin America outside of Brazil for said fund. Before that, Mr. Kühlenthal has held management positions in international financial advisory firms and as a director in companies with presence in various Latin American countries.
Antonio Carlos Valente Da Silva. Mr. Valente was appointed as a director of the company in December of 2020. He is an engineer from the Pontificia Universidade Católica do Rio de Janeiro with a post-graduate degree in management from the same institution. He served as CEO and Chairman of the Board of Directors of Telefonica Brazil and Telefonica del Peru. He has been a member of the Board of Directors of the National Telecommunications Agency in Brazil. He is currently a director of Padtec Holding, Dom Rock and Cinnecta.
Carlos Rojas Perla. Mr. Rojas was appointed as a director of the company in December of 2020. He holds a bachelor’s degree in business administration from the Universidad del Pacífico with specialization courses at Harvard University and the Instituto Tecnológico y Estudios Superiores de Monterrey. He was a founding partner of Capia and director of Enel Generación Peru S.A.A, and is currently the CEO of Capia SAFI. He was Chief Investment Officer and director of Compass Group SAFI between 2006 and 2011 and designed and managed Peru Special Investment Funds, the first Peruvian equity hedge fund.
Santiago Hernando Perez. Mr. Hernando was appointed as a director of the company in December of 2020. He holds a degree in chemical sciences, specializing in chemical engineering, from the University of Valladolid, Spain and an MBA from IEDE Business School. He has worked in the utilities and concessions sector as CEO of Aguas Nuevas S.A., New Business Manager at Aguas Andinas S.A., CEO of Concesionaria Intermodal de la Cisterna and director of several sanitary companies in Chile and Uruguay, as well as the urban public transport company Alsacia in Santiago de Chile. Currently, he is an independent consultant in management and administration of companies and business development and is a director of Aguas Santiago Norte S.A.
Executive Officers
Our executive officers oversee our day-to-day business and are responsible for the execution of the decisions of the Board of Directors. Our executive officers are appointed for an indefinite period of time and their term of office may be terminated by our Board of Directors at its discretion. The following table presents information concerning the current executive officers of our company and their respective positions:
| Name | Position | Year of Birth |
Year
of Appointment |
Year of First Employment at the Company | ||||
| Andre Mastrobuono | Chief Executive Officer | 1961 | 2021 | 2021 | ||||
| Dennis Fernandez Armas | Corporate VP | 1962 | 2021 | 2021 | ||||
| Renzo Ricardo Temoche Romero | VP of Corporate Control and Financial Planning | 1974 | 2023 | 2023 | ||||
| Cristian Restrepo Hernandez | VP of Corporate Finance | 1972 | 2023 | 2023 | ||||
| Zoila Horna Zegarra | Corporate Legal VP | 1975 | 2022 | 2022 | ||||
| Diego Cisneros Salas | Corporate Risk Officer | 1966 | 2022 | 2018 | ||||
| Fernando Rodrigo Barron | VP of Business Development | 1984 | 2022 | 2022 | ||||
| Javier Macedo Chang | Corporate Internal Audit Officer | 1977 | 2022 | 2022 | ||||
| Oscar Pando Mendoza | VP of Supply Chain | 1973 | 2022 | 2016 | ||||
| Manuel Wu Rocha | VP of Infrastructure | 1977 | 2021 | 2001 | ||||
| Javier Vaca Terron | VP of Cumbra | 1970 | 2018 | 2018 | ||||
| Rolando Ponce Vergara | VP of Viva | 1963 | 2008 | 1993 |
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Ms. Silvana Perez Yalan resigned as Corporate Compliance Officer for personal reasons, effective January 1, 2024. As of January 1, 2024, the Compliance function has been temporary assigned to Eliana Paola Camogliano Arrisueño (UNNA Compliance Manager).
Mr. Reynaldo Llosa Martinto resigned as VP of UNNA Energía for personal reasons, effective April 30, 2024. Starting May 2, 2024, the VP of UNNA Energía function will be temporarily assigned to Dennis Fernandez Armas (Corporate VP).
The following sets forth selected biographical information for each of our executive officers:
Andre Mastrobuono. Mr. Mastrobuono joined the company in 2021 as our Chief Executive Officer. Previously, he was a Managing Director, Head of the IG4 Capital’s Operations Team and a member of the Investment Committee of IG4 Capital Private Equity Fund II. Prior to joining IG4 Capital, he was the CEO of Urbplan (2014-2017), he served as the CEO of San Antonio International (2010-2013), and in 2009 he was the CEO of Santelisa Vale. Prior to that, he served as CEO of Parmalat Brasil (2008-2009). Prior to this, Andre served as CEO of Telemig Celular (2006-2008) and as General Director at Vivo (2002-2006). Andre was also an Associate Principal at McKinsey & Company (1996-2002). He has served as a member of the Board of Directors of several companies, including Aegea Saneamento (2014-2018), Urbplan SA (2013-2017), LDC-SEV Bio ENERGIA SA - Biosev (2009-2010), and at ACEL - Associação da Empresas de Telefonia Celular (2007-2008), as Chairman of the Board. Andre holds an MBA from the University of Chicago Booth School of Business and a Bachelor’s degree in Engineering from the University of São Paulo.
Dennis Fernandez Armas. Mr. Fernandez joined the company in 2021 as VP of People, Corporate Affairs and Shared Services. Previously, he served at Telefónica del Peru as Vice President of Corporations, Companies and Businesses between July 2018 and May 2021, Vice President of Strategy, Regulation and Wholesale Business and Digital Transformation between January 2014 and July 2018, Vice President of Network Operations and Wholesale Business between April 2010 and December 2013, Vice President of Customer Services between August 2005 and April 2010 and Vice President of Human Resources between April 1999 and September 2005. Prior to his career at Telefónica del Peru, he worked at Banco de Credito del Peru and AFP Union. Mr. Fernandez has been President of the Peruvian Association of Human Resources (APERHU), as well as a member on two occasions of the Consultative Commission of the Ministry of Labor and Director of the Spanish Chamber in Peru. He is a lawyer by profession, with a post-graduate degree in administration from the ESAN University and a master’s degree in Business Administration from the PAD of the University of Piura, where he is a professor and has taken management specialization courses at IESE, INSEAD, Harvard and Columbia.
Zoila Horna Zegarra. Ms. Horna joined the company in 2022 as Corporate Legal Vice President. Previously, she worked at Luz del Sur S.A.A. as Legal Vice President between January 2018 and November 2022. She also worked in consulting firms and law firms in Peru, including Payet, Rey Cauvi & Abogados. She graduated with a law degree from the Pontificia Universidad Católica del Perú and has an LLM from the London School of Economics and Political Science and a postgraduate degree in Electricity, Gas and Energy Law from Universidad Peruana de Ciencas Aplicadas– UPC.
Renzo Ricardo Temoche Romero. Mr. Temoche joined the company in August 2023 as VP of Corporate Control and Financial Planning. He has 25 years of experience in finance roles as consultant and CFO. Previously he worked at Grupo Educa-d as CFO (2022-2023) and previously he worker as Finance Director for Casa Andina (Intercorp) between May 2009 and January 2021. Renzo holds an accounting degree from the University of Callao and a Finance Master’s degree from ESAN Business School.
Cristian Restrepo Hernandez. Mr. Restrepo joined the company in September 2023 as VP of Corporate Finance He has more than 20 years of finance experience in banking, electric generation, pharma, services, and infrastructure industries. Previously he worked at Rutas de Lima as CFO (2022-2023) and at Atento as South America CFO and Finance Director. He graduated with a financial degree from Universidad Externado de Colombia and holds several postgraduate studies in corporate finance from CESA and IESE Business School.
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Diego Cisneros Salas. Mr. Cisneros joined the company in October 2018 and previously held the positions of Risk and Monitoring Officer. He is currently the Corporate Risk Officer. He is an economist with more than 25 years of professional experience in Risk Management, Capital Markets, Banking and Microfinance. He graduated from the Faculty of Social Sciences, with a major in Economics at the Pontificia Universidad Católica del Peru and did his postgraduate studies in Economics and Finance at the Faculty of Political Economy of the University of Geneva - Switzerland. He has been Deputy Superintendent of Banking and Microfinance of the Superintendence of Banking, Insurance and Pension Funds in Peru between 2008 and 2012. Previously he was the Deputy Superintendent of Risks between 2004 and 2008, for the same Superintendency. Subsequently, he worked as a specialist in financial markets with the International Monetary Fund. He has worked for several companies in the financial system in senior executive positions. He has also been a member of several Boards of Directors in the private financial sector as well as in the state. He is a recurring lecturer on risk management issues and a university professor in the areas of Risk Management and Portfolio Management.
Fernando Rodrigo Barron. Mr. Rodrigo joined the company in 2022 as Vice President of Business Development and as of March 31, 2023, he also assumed the role of Vice President of Corporate Finance. Before that, he was a Principal at IG4 Capital and Head of IG4 Capital’s Lima office, having joined IG4 Capital as a Senior Associate in 2018. Prior to joining IG4 Capital, Fernando worked at Ambev from 2016 to 2018, most recently as Head of Cash Flow & Capex for Latin America North (Brazil & the Caribbean). Previously, he worked in private equity, first as an Associate at Enfoca, a leading Peruvian investment firm, from 2013 to 2014, and then as a Senior Associate at Arlon Group, a firm focused on mid-market investments in the food & agriculture sector, from 2015 to 2016. Prior to this, he worked as an investment banker in the United States, first as an Analyst at Credit Suisse from 2007 to 2009 and then as an Associate at Pan American Finance from 2010 to 2011. He began his career as an Analyst on the International Equities Sales Trading desk at Goldman Sachs in New York City in 2006. He holds a bachelor’s degree in government from Harvard College and an MBA from the Kellogg School of Management.
Javier Macedo Chang. Mr. Macedo joined the company in February 2022 as Corporate Internal Audit Officer. He has 21-years of experience in internal auditing, internal control, risk management, fraud investigations, financial and operational consulting, and corporate compliance. He has worked for EY providing advisory services to several multinational companies related to construction, real estate, oil & gas, mining, and construction sectors, in North, Central and South American countries and Spain. He has also worked at Barrick Gold Corporation as Regional Capital Projects Audit Manager and at Savia and Cosapi groups leading their internal audit functions. Mr. Macedo currently holds the following certifications from the Institute of Internal Auditors (USA): Certified Internal Auditor (CIA) and the Certification in Control Self-Assessment (CCSA). He holds a bachelor’s degree in Accounting from Universidad del Pacifico (Peru), post-graduate diplomas in Mining Management from Universidad ESAN (Peru) and in Corporate Governance and Compliance from Universidad del Pacifico (Peru), and he also holds an Executive MBA from Politecnico Di Milano (Italy).
Oscar Pando Mendoza. Mr. Pando joined the company in May 2016 and initially as General Manager of our infrastructure subsidiary Unna Transporte until 2019. From 2019 to 2021, he served as Regional CFO for our Engineering & Construction business unit. Mr. Pando currently serves as Vice President of Supply Chain. Prior to joining the company, Mr. Pando served in different functional positions in different countries in Latin America and the United States, such as Regional Manager of Corporate Affairs, CFO, Financial Planning Manager at Philip Morris International, General Manager in different industries such as Services, Fishery and Consumer Goods, and Bankruptcy Administrator for Doe Run Peru, one of the major restructuring/liquidation cases in Peru. He holds a degree in Business Administration from the Universidad de Lima and an MBA degree from Georgetown University. Mr. Pando is also member of the Board of Directors in several of our subsidiaries, including Cumbra Peru, Vial & Vives – DSD S.A., Unna Energia S.A. and Viva Negocio Inmobiliario S.A.
Manuel Wu Rocha. Mr. Wu is a civil engineer from the Pontificia Universidad Católica del Peru and holds a Master’s degree in business administration from the Universidad de Piura (Peru). He joined the company in 2001 and acted as chief technical officer for the oil and gas, electricity, infrastructure and sanitation areas of Cumbra Peru from 2003 until 2007. He became manager of purchasing and logistics for Cumbra Peru in 2007, and general manager of the consortium Lima Actividades Comerciales comprised of Cumbra Peru and Aguas de Barcelona from 2009 until 2011. Since 2011, he has worked as chief executive officer of Línea 1 S.A. Mr. Wu is currently Chief Executive Officer of Highway Concessions.
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Reynaldo Llosa Martinto. Mr. Llosa joined the company in 2014 and has served as the chief executive officer of UNNA Energía since February 2014. He holds a degree in mechanical engineering from the University of Houston, as well as an MBA from the Universidad de Piura (Peru). He has completed several technical and executive programs, including certificate programs at Rice University and the Kellogg School of Management. He served as the chief executive officer of BPZ Energy from 2010 to 2013. Prior to that, he had worked in Schlumberger for 25 years, the last 15 of which he spent in management positions.
Javier Vaca Terron. Mr. Vaca graduated as a Civil Engineer, Channels and Ports from the Universidad Politécnica de Madrid in 1996. He joined the Spanish company, Ferrovial Agroman, participating in the study of international works and directing the execution of projects in Madrid. In 2004, he completed an Executive MBA at IESE and joined Grupo Assignia as Director of International Production at the construction company, developing his work mainly in Latin America. In 2007, he was assigned new responsibilities within the Assignia group, as CEO of another group company, Eductrade, dedicated to foreign trade in the field of Health and Education. In 2014, he returned to the construction industry, this time directing the Business Development and Studies, Hiring and Institutional Relations Areas of the Spanish FCC. In 2016, he joined the OHL company as Southern Cone Zone Director, based in Santiago, Chile. In February 2018, he joined AENZA as Regional Manager of the E&C segment and now serves as Chief Executive Officer of Cumbra Peru.
Rolando Ponce Vergara. Mr. Ponce joined the company in 1993 and has served as the Chief Executive officer of our subsidiary Viva since 2008, and as our Chief Real Estate Area Officer since 2014. He holds a degree in civil engineering from Universidad Ricardo Palma (Peru). He also holds a Master’s degree in construction and real estate business management from the Pontificia Universidad Católica de Chile-Politécnica de Madrid, Spain. He previously served as manager of Cumbra Peru’s real estate division. He is currently a member of the boards of directors of our subsidiaries Viva and Almonte.
Executive Commission
Our Executive Commission is currently comprised by our Chief Executive Officer (CEO), our Vice President of People, Public Affairs and Shared Services, our Vice President of Corporate Finance and Business Development, our Vice President of Corporate Control and Financial Planning, our Corporate Legal Vice President and the Business Segments Vice Presidents for each of the four reportable segments. The Executive Commission evaluates, at the management level, among other matters, our strategic plan, annual budget, and annual investment plan.
Kinship
None.
B. Compensation
Compensation of Directors and Executive Officers
Director compensation must be approved by a majority of shareholders at our annual shareholders’ meeting.
In 2023, total compensation paid to our Board of Directors amounted to S/1.77 million, including compensation paid to directors that serve on our subsidiaries’ Board of Directors. In 2023, total compensation paid to our executive officers amounted to S/26.27 million.
We also paid health insurance to three former senior managers of the company, approved by the talent committee. This health insurance policy is reviewed quarterly by our committees. Under Peruvian law, unless we dismiss someone for justified cause, we are required to pay the dismissed employee (but not directors) 1.5x annual salary for every year with our company for a period not to exceed eight years. We are not required to make such payments in the event of voluntary termination. Although we have no ongoing obligation to do so, in the past we have provided, and in the future, we may provide, such benefits to our executive officers upon their retirement. We have not set aside or reserved any amounts to provide for pension, retirement, or other similar benefits.
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Executive Compensation Plan
We establish and pay executive compensation in compliance with applicable labor and tax regulations and corporate governance standards and in accordance with market conditions.
We establish pay scales taking into consideration senior managers’ responsibilities, including the degree of complexity of those responsibilities, power of decision-making and scope of supervision entrusted.
The fixed salary component of compensation is established for each position based on a pay scale. Fixed salary includes family allowance and cost of living payments, if applicable. We evaluate senior managers at least once a year to develop action plans in furtherance of continuously improving management performance.
The variable component of compensation is paid to senior managers and other employees for meeting specific goals, and is related both to our financial results and specific objectives by subsidiary. Variable compensation is typically paid as an annual incentive.
In addition, labor regulation establishes a mandatory profit sharing provision of 5% of our total annual taxable income, to be distributed among all employees, calculated based on a formula established by law that considers the days worked in the year and remuneration.
Our senior managers also receive additional benefits, typically non-pecuniary. The benefits granted include: (ii) an insurance policy, including work accident and high risk coverage; and (ii) Private Health Insurance.
C. Board Practices
Board Committees
As of the date of this annual report, we have four board committees in place comprised of members of our Board of Directors: (i) Audit and Compliance Committee; (ii) Environmental, Social and Corporate Governance Committee; (iii) Talent Committee; and (iv) Finance, Risk and Investment Committee.
Audit and Compliance Committee
Our Audit and Compliance Committee is comprised of directors Mr. Carlos Rojas Perla (chairman of the committee), Mr. Santiago Hernando Perez, Mr. Antonio Carlos Valente Da Silva and Mr. Juan Vicente Revilla Vergara (non-voting observing member). Mr. Carlos Rojas Perla, Mr. Santiago Hernando Perez and Mr. Antonio Carlos Valente Da Silva fulfill the independence standards set forth in Rule 10A 3 of the U.S. Exchange Act. Mr. Carlos Rojas Perla qualifies as an “audit committee financial expert” in accordance with applicable SEC rules. Our Audit and Compliance Committee oversees our corporate accounting and financial reporting process. The Audit and Compliance Committee is responsible for, among other things:
Our Audit and Compliance Committee oversees our corporate accounting and financial reporting process. The Audit and Compliance Committee is responsible for, among other things:
| ● | ensuring the integrity of our financial statements and financial and non-financial reports; |
| ● | reviewing our financial statements and other financial reports and recommending to the Board of Directors their approval and the submission of the annual financial statements to the shareholders for approval; |
| ● | conducting the selection process of the external audit firm, submit a recommendation to the Board of Directors regarding the external auditor so that the Board of Directors may make an informed proposal to the shareholders over this matter; |
| ● | assessing the performance of the external audit firm with a special emphasis on its independence; |
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| ● | supervising and evaluating the external and internal audit processes; |
| ● | recommend to the Board of Directors the appointment or removal of the Corporate Internal Audit Officer and Corporate Compliance Officer; |
| ● | assessing the efficacy of the governance and internal control practices, as well as the reliability of the compliance management processes and of the financial and non-financial reports of the company |
| ● | evaluating our company’s compliance with the Board of Director’s internal regulation, as well as with general principles of corporate governance; |
| ● | informing our Board of Directors regarding any issues that arise with respect to the quality or integrity of our financial statements, our compliance with legal or regulatory requirements, the performance and independence of the external auditors, or the performance of the internal audit function; |
| ● | establishing procedures for the reception, retention and treatment of complaints regarding any breaches to our code of ethics or internal policies including but not limited to accounting, internal controls or other auditing matters, including the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; |
| ● | supervising the investigations conducted in relation to complains made through the ethical channel or any other whistleblower channel available by the company to our employees, suppliers or any other stakeholders and adopt any corrective necessary measures; |
| ● | approving the internal audit plan; |
| ● | reviewing the findings of the internal audit and monitoring their corresponding remediation plans; |
| ● | proposing to the Board of Directors the approval of the code of ethics and of the company’s corporate governance framework and supervising their implementation; |
| ● | recommending to the Board of Directors the approval of policies that are tailored to the nature, size, risks and complexity of its business in matters related to: (A) ethical management; (B) insider trading; (C) due diligence of counterparts; (D) preventing money laundering and the financing of terrorism, corruption and other crimes; (E) managing conflicts of interest; (F) monitoring compliance of the policies and applicable laws and regulations; and (G) any other matter necessary to fulfill its purpose; |
| ● | supervising and assessing the compliance function and approving its budget; |
| ● | reviewing the results of the assessment of effectiveness and efficiency tests on control mechanisms made by internal and external auditors and measuring the impact on residual risks that any ineffectiveness or inefficiency of control mechanisms may cause; |
| ● | proposing measures and controls for the prevention of crime and the advancement of ethical conduct within the company; |
| ● | informing the Board of Directors whenever it identifies an inconsistency between the company’s strategy and the company’s policies and propose measures to eliminate such inconsistency; |
| ● | supervising and assessing the transactions entered by the company or its subsidiaries with related counterparties; |
| ● | monitoring the implementation of the compliance training program; |
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| ● | supervising the implementation of crime prevention and compliance policies ensuring that management assigns sufficient resources to that end; |
| ● | determining the periodicity and form by which members of the Board of Directors shall inform any potential conflicts of interest or any other individual disclosure that is required; |
| ● | assessing and monitoring compliance with regulatory and legal obligations and policies; |
| ● | independently engaging its own counsel and any other advisers it deems necessary to fulfill its functions; and |
| ● | establishing policies and procedures to pre-approve audit and permissible non-audit services. |
The Corporate Internal Audit Officer and Corporate Compliance Officer report to this committee. Our Board of Directors has adopted a written charter for our Audit and Compliance Committee that is included in the Charter of the Board of Directors, which is available on our website at www.aenza.com.pe.
Environment, Social and Corporate Governance
Our Environment, Social and Corporate Governance Committee is comprised of three directors. The current members of the committee are Mrs. Gema Estaban Garrido (chairwoman of the committee), Mr. Pablo Ignacio Kühlenthal Becker and Mr. Antonio Carlos Valente. The Environment, Social and Corporate Governance Committee is responsible for, among other things:
| ● | supervising and providing opinion to management in relation to the implementation of policies, strategies, programs, objectives and goals related to corporate sustainability, based on the best international practices and according to our strategic plan; |
| ● | supervising and advising management with regard to the identification, assessment and management of risks and opportunities within the sustainability field, considering public policies, regulations and legislation on the matter; |
| ● | monitoring and analyzing social, environmental and corporate governance indicators and report to the Board of Directors regarding the evolution of such indicators, as well as to propose corrective measures when necessary; |
| ● | ensuring that the Company’s strategic plan includes social, environmental and corporate governance initiatives and indicators, including the determination of the financial impact of such indicators; |
| ● | identifying the existence or absence of efficient and innovative internal control systems in social and environmental matters; and |
| ● | verifying compliance with the highest environmental, social and corporate governance standards. |
The Vice President of Public Affairs, Human Resources, Shared Services and Information Technology reports to this committee. Our Board of Directors has adopted a written charter for our Environment, Social and Corporate Governance Committee that is included in the Charter of the Board of Directors, which is available on our website at www.aenza.com.pe.
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Talent Committee
Our Talent Committee is comprised of three directors. The current members of the committee are Mr. Juan Vicente Revilla Vergara (Chairman), Mr. Santiago Hernando Perez and Mr. Esteban Viton Ramirez. The Talent Committee is responsible for, among other things:
| ● | assisting the Board of Directors on its proposal to the shareholders regarding the number of directors, candidates to the board, their compensation, and the election of new members under the cooptation election system; |
| ● | advising the Board of Directors regarding the appointment and resignation or dismissal of managerial workers, with direct report to the CEO; | |
| ● | proposing to the Board of Directors for its approval the corporate policies related to compensation, succession, selection and retention of talent, as well as the exceptions to such corporate policies; |
| ● | evaluate the Board of Directors and management performance on an annual basis; |
| ● | proposing both Board of Directors and CEO candidates and arranging the corresponding recruitment process; and |
| ● | monitoring the company reputation (internally and externally) and proposing measures to the Board of Directors. |
As a foreign private issuer, we are not required to maintain a compensation committee that complies with all of the U.S. laws and regulations.
Our Board of Directors has adopted a written charter for our Talent Committee that is included in the Charter of the Board of Directors, which is available on our website at www.aenza.com.pe.
Finance, Risk and Investment Committee
Our Finance, Risk and Investment Committee is comprised of three directors. The current members of the committee are Mr. Pablo Ignacio Kühlenthal Becker (Chairman), Mr. Gustavo Nickel Buffara de Freitas and Mr. Julio Dittborn Chadwick.
The Finance, Risk and Investment Committee is responsible for, among other things:
| ● | establishing our investment policies; |
| ● | assessing the profitability of the Company’s investments; |
| ● | approving and monitoring the liquidity plan and the capitalization or indebtedness of the Company; |
| ● | proposing to the Board of Directors the approval of equity contributions, mergers or acquisitions and any purchase or sale of companies or businesses; |
| ● | analyzing the projects that would require an investment greater than US$5 million; |
| ● | identifying risk indicators to measure the most relevant risks and monitoring such indicators on a quarterly basis; and |
| ● | ensuring that the Company and its subsidiaries adequately mitigate their risk and that they have in place business continuity and recovery plans. |
Our Board of Directors has adopted a written charter for our Finance, Risk and Investment Committee that is included in the Charter of the Board of Directors, which is available on our website at www.aenza.com.pe.
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D. Employees
We have developed an extensive and talented team, including more than 1,478 engineers, which gives us the capability and scale to undertake large and complex projects. We also have access to a network of 50,000 manual laborers throughout Peru that can supplement our workforce when required by our projects. Moreover, we have the flexibility to engage our own workers on projects outside Peru, avoiding the need to seek new employees in other countries.
As of December 31, 2023, we had a total of 12,787 full-time employees, including 5,002 manual laborers, a number that fluctuates depending on our project backlog. As of December 31, 2023, 26% of our employees worked outside Peru. The following table sets forth a breakdown of our employees by category as of December 31, 2023
| Salaried Employees | Infrastructure | Energy | E&C | Real Estate | Corporate (3) | TOTAL | ||||||||||||||||||
| Engineers | 189 | 193 | 992 | 69 | 35 | 1,478 | ||||||||||||||||||
| Other Professionals | 1555 | 90 | 500 | 79 | 145 | 2,369 | ||||||||||||||||||
| Technical specialists | 609 | 15 | 1,188 | 23 | 25 | 1,861 | ||||||||||||||||||
| Manual Laborers(1) | 50 | 111 | 4,648 | 193 | 0 | 5,002 | ||||||||||||||||||
| Joint operation employees(2) | 57 | 0 | 2,019 | 0 | 0 | 2,076 | ||||||||||||||||||
| Subtotal | 2,460 | 409 | 9,347 | 364 | 205 | 12,786 | ||||||||||||||||||
| Subcontracted employees | 1,204 | 1,204 | 682 | 413 | 0 | 3,502 | ||||||||||||||||||
| Total | 3,665 | 1,613 | 10,029 | 777 | 205 | 16,288 | ||||||||||||||||||
| (1) | The number of manual laborers, who form part of our network of 43,000 manual laborers, varies in relation to the number and size of projects we have in process at any particular time. |
| (2) | Includes engineers, professionals, technical specialists and manual laborers employed by our joint operations. |
| (3) | Includes parent company and our subsidiary Qualys S.A. |
The following chart sets forth the changes of our total employees as of December 31, 2021, 2022 and 2023.
Total Employees
In 2023, AENZA has continued to strengthen human management policies and processes, with the objective of improving the workers life cycle within the company. In this sense, nine policies have been created and the processes have been optimized to make them more agile and with adequate controls.
Also, AENZA obtained the “ABE Good Employers Association” certification, accrediting excellence in labor practices.
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Our talent development system was improved and strengthen to attract qualified young professionals, with the creation of a Corporate Trainee Program, the second edition and of “Trainee Impulso” program “Program Cantera”, and the “Pasos Fijos” development program for Oil & Gas professionals, among others.
Through “La Academia”, we launched the second version of our “EDD Executive Development Program”, oriented to the 120 main executives of the Group, very focused on the development of our corporate competencies, with the objective of not only strengthening the leadership of our people but also accelerate our cultural transformation process.
In terms of training, more than 30 hours of training per capita have been given to workers with a total investment of US$ 45,000, continuing the emphasis not only on technical and professional development but also on our corporate values, regulatory courses, and development of personal skills.
Substantially, all our manual laborers and some of our other professionals are members of labor unions. We consider our current relationship with unions to be positive.
Last year, two negotiations were successfully closed with internal unions in the infrastructure and energy businesses and a sectoral negotiation in the civil construction segment, reinforcing the organization’s principle of maintaining healthy labor relations with our people.
Safety
We safeguard the health and safety of our employees and of all the persons present in our operations and services. To that end, we provide safe work conditions, we manage risks in a timely manner and we promote a culture of prevention, starting from the leadership and commitment of our senior management.
The results obtained during 2023 reflect an improvement due to the reduction in the frequency of accidents, achieving an accident incidence rate of 0.19 accidents per 200,000 hours worked, a significant reduction compared to the previous year.
Our safety management process has been strengthened, achieving significant advances to ensure the operation as a whole.
Our occupational health and safety management system is certified by the ISO 45001 standard. We also have ISO 14001 certifications regarding environmental management.
We are aware that correct support strengthens management as a whole, for that reason we offered our own personnel and contractors more than 1,312,208 hours of training on Safety, Occupational Health and Environment issues.
E. Share Ownership
As of December 31, 2023, persons who are currently members of our Board of Directors and our executive officers did not hold our common shares.
Our directors and executive officers do not have different voting rights.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
As of April 30, 2024, our issued and outstanding share capital was comprised of 1,371,964,891 common shares. The following table sets forth the beneficial ownership of our common shares as of April 30, 2024, based on information provided to us by CAVALI S.A. ICLV, the Peruvian clearing house (“CAVALI”):
| Shareholder | Number of shares | Percentage owned | ||||||
| IG4 Capital Infrastructure Investments LP(1) | 394,732,085 | 28.77 | % | |||||
| AFP PRIMA S.A. (Grupo Crédito) | 237,409,042 | 17.30 | % | |||||
| AFP INTEGRA S.A. (Sura Group) | 130,900,004 | 9.54 | % | |||||
| AFP PROFUTURO S.A | 146,638,928 | 10.69 | % | |||||
| Fratelli Investment Limited | 127,222,815 | 9.27 | % | |||||
| AFP HABITAT | 117,483,032 | 8.56 | % | |||||
| Pacifico Corp S.A.C | 118,630,216 | 8.65 | % | |||||
| Other Shareholders | 98,948,769 | 7.21 | % | |||||
| Total(2) | 1,371,964,891 | 100.00 | % | |||||
| (1) | On June 15, 2021, IG4 Capital announced a tender offer for a total of 107,198,601 common shares equivalent to 12.29% of our outstanding shares. On August 10, 2021, IG4 Capital purchased a significant shareholding participation amounting to 23.90% of the total outstanding shares, of which 12.29% was purchased within the tender offer and additional common shares equivalent to 11.61% of our total outstanding shares were acquired in transactions outside of the tender offer. Furthermore, on August 12, 2021, certain shareholders of AENZA signed a trust agreement with IG4 Capital, as trustee, and La Fiduciaria S.A., as fiduciary, whereby IG4 Capital acquired the voting rights of AENZA’s common shares representing 8.97% of the total outstanding shares for a period of eight years, which could be automatically renewed for an additional period of eight years. As of December 2023, IG4 Capital owns 28.77% of our capital stock, which includes (i) 18.52% of our capital stock held directly, (ii) voting rights to the 4.47% and 3.91% of our capital stock held by GH Holding Group and La Fiduciaria – FID IG4, respectively, and (iii) voting rights to an additional 1.87% of our capital stock pursuant to certain agreements between IG4 Capital and certain other shareholders. |
| (2) | On December 27, 2023, AENZA issued 174,984,912 new common shares, at a par value per share of S/ 1.00 and a placement price per share of S/ 0.4971, increasing AENZA’s’s capital stock from S/ 1,196,979,979 to S/ 1,371,964,891. The total shares were fully subscribed and paid in two pre-emptive subscription rounds and in the private offering. On February 15, 2024, the 174,984,912 common shares resulting from the capital increase were delivered to their holders. |
As of December 31, 2023, 15 record holders of our common shares were located in the United States (including Bank of New York Mellon), according to CAVALI.
The following table sets forth the changes in beneficial ownership of our common shares from December 31, 2021, to December 31, 2023, based on information provided to us by CAVALI and The Bank of New York Mellon.
| As of December 31, 2021 | As of December 31, 2022 | As of December 31, 2023 | ||||||||||||||||||||||
| No. of Shares | Percentage Owned | No. of Shares | Percentage Owned | No. of Shares | Percentage Owned | |||||||||||||||||||
| IG4 Capital Infrastructure Investments LP(1) | 107,198,601 | 12.29 | 219,138,382 | 18.31 | 254,126,755 | 18.52 | ||||||||||||||||||
| AFP PRIMA S.A. | 90,772,445 | 10.41 | 143,222,423 | 11.97 | 220,229,978 | 16.05 | ||||||||||||||||||
| AFP INTEGRA S.A. | 63,290,664 | 7.26 | 120,405,185 | 10.06 | 133,347,625 | 9.72 | ||||||||||||||||||
| AFP PROFUTURO S.A. | 67,087,463 | 7.69 | 138,997,401 | 11.61 | 100,554,137 | 7.33 | ||||||||||||||||||
| FRATELLI INVESTMENTS LIMITED | 86,633,390 | 9.94 | 110,996,399 | 9.27 | 127,222,815 | 9.27 | ||||||||||||||||||
| AFP HABITAT S.A. | 93,878,296 | 10.77 | 98,083,875 | 8.19 | 114,836,030 | 8.37 | ||||||||||||||||||
| PACIFICO CORP S.A.C | 76,217,749 | 8.74 | 103,499,728 | 8.65 | 118,630,216 | 8.65 | ||||||||||||||||||
| GH Holding Group(2) | 61,349,148 | 7.04 | 61,349,148 | 5.13 | 61,349,148 | 4.47 | ||||||||||||||||||
| La Fiduciaria – FID IG4(1) | 53,647,119 | 6.15 | 53,647,119 | 4.48 | 53,647,119 | 3.91 | ||||||||||||||||||
| The Bank of New York Mellon(3) | 136,637,740 | 15.67 | 130,025,625 | 10.86 | 70,312,080 | 5.12 | ||||||||||||||||||
| (1) | On June 15, 2021, IG4 Capital announced a tender offer for a total of 107,198,601 common shares equivalent to 12.29% of our outstanding shares. On August 10, 2021, IG4 Capital purchased a significant shareholding participation amounting to 23.90% of the total outstanding shares, of which 12.29% was purchased within the tender offer and additional common shares equivalent to 11.61% of our total outstanding shares were acquired in transactions outside of the tender offer. Furthermore, on August 12, 2021, certain shareholders of AENZA signed a trust agreement with IG4 Capital, as trustee, and La Fiduciaria S.A., as fiduciary, whereby IG4 Capital acquired the voting rights of AENZA’s common shares representing 8.97% of the total outstanding shares for a period of eight years, which could be automatically renewed for an additional period of eight years. As of December 2023, IG4 Capital owns 28.77% of our capital stock, which includes (i) 18.52% of our capital stock held directly, (ii) voting rights to the 4.47% and 3.91% of our capital stock held by GH Holding Group and La Fiduciaria – FID IG4, respectively, and (iii) voting rights to an additional 1.87% of our capital stock pursuant to certain agreements between IG4 Capital and certain other shareholders. |
| (2) | Voting rights transferred to IG4 Capital as part of the agreement mentioned in note (1) above. |
| (3) | As of December 31, 2021, and 2022, The Bank of New York Mellon includes AFP PRIMA S.A. and AFP PROFUTURO S.A. beneficial ownership of our common shares. |
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Our major shareholders do not have different voting rights.
In December 2018, our company issued and sold a total of 69,380,402 common shares through a combination of preemptive rights to the company’s existing shareholders and a private placement. On April 2, 2019, our company issued and sold 142,483,633 common shares pursuant to a private placement.
On August 13, 2021, AENZA issued Convertible Bonds in a total principal amount of US$89.9 million. The Convertible Bonds matured in February 2024, beared interest at a rate of 8%, and were payable quarterly. The Convertible Bonds were convertible into shares as of the sixth month from the date of issuance. In accordance with the terms and conditions of the Convertible Bonds, holders of Convertible Bonds in a principal amount equivalent to US$11 million exercised their conversion rights and on February 28, 2022 we issued 37,801,073 new common shares. Additionally, holders of Convertible Bonds in a principal amount equivalent to US$78.9 million exercised their conversion rights and, on March 31, 2022, we issued an additional 287,261,051 new common shares. After these conversions, the Convertible Bonds were fully cancelled.
On September 5, 2023, the Board of Directors approved a capital increase by new monetary contributions, in order to allocate the proceeds of such capital increase to the partial repayment of financial obligations of the Company. In line with this, on October 24, 2023, the General Shareholder’s Meeting approved a capital increase up to an amount equivalent to US$ 22,500,000, with the corresponding issuance of new common shares, with voting rights, par value of S/1.00 each, at a unit placement value equal to S/0.4971. Thereafter, on October 26, 2023, the Board of Directors unanimously approved a capital increase of up to 174,984,912 shares at a placement price of S/0.4971.
On October 31, 2023, the Board of Directors approved the intention to initiate the delisting process of shares represented by ADS from the NYSE, the deregistration process of AENZA from the SEC and the termination of our ADS program. On November 16, 2023, AENZA notified the NYSE of its intention to voluntarily delist the ADSs from the NYSE. AENZA also notified the Depositary under our ADS program of the termination of the ADS program. On November 27, 2023, we filed a Form 25 with respect to the delisting of our ADSs from the NYSE. The delisting became effective on December 7, 2023, and the termination of the ADS program was effective on February 26, 2024.
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On December 27, 2023, the Board of Directors unanimously agreed to conclude the capital increase process when 100% of the shares to be issued were subscribed. Upon completion of the capital increase, the Company’s capital stock amounts to S/1,371.9 million. US$20 million was used to prepay the bridge loan. On February 15, 2024, the 174,984,912 common shares resulting from the capital increase were delivered to their holders.
B. Related Party Transactions
Peruvian Law Concerning Related Party Transactions
Peruvian law sets forth certain restrictions and limitations on transactions with certain related parties.
Valuation: from a tax standpoint, the value of those transactions must be equal to the fair market value assessed under transfer pricing rules, i.e., the value agreed to by non-related parties under the same or similar circumstances. Similarly, companies with securities registered in the Peruvian Public Registry of Securities (Registro Público del Mercado de Valores), such as us, are required to comply with the following rules:
| ● | The directors and managers of our company cannot, without the prior authorization of the Board of Directors, (i) receive in the form of a loan money or assets of our company; or (ii) use, for their own benefit or for the benefit of related parties, assets, services or credits of our company. |
| ● | The execution of agreements that involve at least 5% of the assets of our company with persons or entities related to directors, managers or shareholders that own, directly or indirectly, 10% of the share capital, requires the prior authorization of the Board of Directors (with no participation of the director involved in the transaction, if any). |
| ● | The execution of agreements with a party controlled by our company’s controlling shareholder requires the prior authorization of the Board of Directors and an evaluation of the terms of the transaction by an external independent company (audit companies or other determined by Resolución SMV N 029-2018-SMV-01). |
Independent review: the external independent company that reviews the transaction should not be related to the parties involved therein, nor to directors, managers or shareholders that own at least 10% of the share capital of such parties involved.
The agreements referred to in the second and third bullets above include agreements for the selling and purchasing of assets or for the rendering of services, as well as security agreements and any other transaction performed either for valuable consideration or for free with related parties, representing at least 5% of the assets of the company with securities registered in the Peruvian Public Registry of Securities. The prior authorization of the Board of Directors and/or the evaluation of the terms of the transaction by an external independent company mentioned in the second and third bullets above, are not mandatory when both or any of those requirements have been expressly excluded by a decision adopted unanimously by the company’s shareholders with effective voting rights.
Terms and conditions: As a general policy, we do not enter into transactions with directors and executive officers on terms more favorable than what we would offer third parties. Any related party transaction we have entered into in the past has been in the ordinary course of business and on an arm’s length basis and have complied with the requirements detailed above, as applicable.
Related Party Transactions
We enter into certain related party transactions in the ordinary course of our business. No such transactions in effect during 2023 were material to our company or, to our knowledge, to any such related party, nor were any such transactions unusual in their nature or condition. See Note 11 to our audited annual consolidated financial statements included in this annual report.
C. Interests of Experts and Counsel
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information.
See Item 18 of this annual report on Form 20-F.
Legal and Administrative Proceedings
Our company, certain of our subsidiaries, and certain of our former directors and senior managers, have been charged in connection with criminal and civil investigations relating to certain of our projects in connection with our association with Odebrecht and in connection with our alleged participation in what is referred to as the “construction club” during the period 2004 to 2016, as well as administrative proceedings initiated by INDECOPI related to these and other matters arising from conduct during the period from 2002 to 2016. See also “Item 3.D. Key Information—Risk Factors—Risks Related to Key Developments.” These proceedings have led to significant changes in our corporate governance structure and senior management, as well as to the adoption of measures to address compliance matters. Below we describe the most material proceedings involving the Company:
Criminal Investigations Derived from Projects Developed in Partnership with Odebrecht
In 2018, the Peruvian criminal prosecutor charged our company and Cumbra Peru, as criminal defendants in connection with the IIRSA South (tranche II) project concession, and the Peruvian First National Preparatory Investigation Court (Primer Juzgado de Investigación Preparatoria Nacional) included our company and Cumbra Peru in its criminal investigation. Additionally, in December 2018, the Peruvian First National Preparatory Investigation Court also resolved to include our company and Cumbra Peru as civilly liable third parties in the investigations related to the IIRSA South (tranche II) project concession and Cumbra Peru as a civilly liable third party in the investigations related to Tranches 1 and 2 of the Lima Metro.
Additionally, Peruvian prosecutors have included José Graña Miró Quesada, the former Chairman of our company, and Hernando Graña Acuña, a former board member of our company and former chairman of Cumbra Peru, in an investigation for the crimes of collusion and money laundering against the Peruvian government, respectively, each in connection with the IIRSA South (tranche II) project concession, in which we participated with Odebrecht. Gonzalo Ferraro Rey, the former Chief Infrastructure Officer of our company, has also been included in an investigation for the crime of money laundering in connection with the same project. In addition, José Graña Miró Quesada, Hernando Graña Acuña and Juan Manuel Lambarri, the former chief executive officer of Cumbra Peru, have been charged in connection with Tranches 1 and 2 of the Lima Metro. On February 9, 2022, the Peruvian press reported that Peruvian prosecutorial authorities entered into the plea agreements with José Graña Miró Quesada and Hernando Graña Acuña. On January 3, 2023 and January 18, 2023, the plea agreements with José Graña Miró Quesada and Hernando Graña Acuña, respectively, received judicial approval. The plea agreements are confidential under Peruvian law and, therefore, we do not know their content. However, such agreements may include information related to wrongdoing or knowledge of improper behavior while José Graña Miró Quesada and Hernando Graña Acuña were at the Company.
We understand that Peruvian prosecutors had initiated an investigation with respect to the Chavimochic project. Since neither the Company nor any of its affiliates or personnel were subject to investigation and therefore we have limited information. However, the Chavimochic investigation was subsequently closed in connection with the Company without any further action. The project has not been operational since 2017 and the concession agreement has been terminated, as a result of an arbitral award notified to the concessionaire in October 2023. The arbitral award determined joint liability from both the concessionaire and the Peruvian government in connection with defaults to the concession agreement, as well as the termination of the concession. The arbitral award granted a termination payment in favor of the concessionaire (with respect to which AENZA holds a 26.5% minority stake) equal to US$25,307,438 plus interest, while also authorizing the grantor (Ministry of Agricultural Development) to draw 70% of the performance bond, equal to US$25,060,000, plus interest. As of December 31, 2023, we recognized a financial debt in the amount of US$ 7.9 million as a result of the performance bond granted to secure Chavimochic’s obligations under the concession agreement.
With the Final Agreement on Settlement and Cooperation in force, all of our criminal investigations in connection with our past partnerships with Odebrecht have concluded. For information on the Chavimochic project.
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Administrative Process in Relation to the Construction Club
On July 11, 2017, INDECOPI initiated an investigation against several Peruvian construction companies (including Cumbra Peru), about the existence of an alleged cartel called the Construction Club.
On February 11, 2020, our subsidiary Cumbra Peru was notified by the Technical Secretariat of INDECOPI’s Free Competition Defense Commission (the “Commission”) with a resolution announcing a sanctioning administrative procedure involving a total of 35 companies and 28 natural persons, for alleged anticompetitive conduct in the market of public works.
On March 9, 2021, Cumbra Peru was notified with the Final Instruction Report prepared by the Technical Secretariat of the Commission, in connection the administrative sanctioning procedure against 33 construction companies and 26 of their executives for having adopted a coordination system through which they agreed to share several bids called by Provias Nacional and other entities of the Peruvian state. On November 15, 2021, the Commission issued Resolution No. 080-021-CLC-INDECOPI, which resolved to sanction in first administrative instance the above mentioned companies and their executives, including Cumbra Peru. On December 9, 2021, Cumbra Peru filed an appeal against the referred resolution, suspending any execution of the resolution, including the payment of the fine imposed and the compliance with the corrective measures ordered. As of December 31, 2023, the Company maintains a provision that was recognized amounting to S/56.4 million (S/52.4 million as of December 31, 2022).
Final Agreement on Settlement and Cooperation (Acta de Acuerdo Final de Colaboración y Beneficios)
On May 21, 2021, the Company entered into a preliminary collaboration and benefits agreement with a special team of Peruvian prosecutors covering the investigations related to corruption offenses of officials and related personnel, in which the Company, Odebrecht and others would have incurred (the “Prosecutor’s Office”), and with the ad hoc Public Prosecutor’s Office for investigations and processes related to crimes related to corruption of officials, money laundering and related activities (the “Attorney General’s Office”) allegedly committed by the Odebrecht company and others.
On September 15, 2022, the Final Agreement on Settlement and Cooperation was entered into between the Peruvian Public Prosecutor’s Office, the Attorney General’s Office and the Company, whereby AENZA accepted that they were utilized by certain former executives to commit illicit acts in a series of periods until 2016, and committed to pay a civil compensation to the Peruvian Government of S/488.9 million (S/333.3 million and US$ 40.7 million) calculated according to the formula established by Law No. 30737. The agreement was ratified (homologado) by judgment dated August 11, 2023, and entered into force with its consent, which was notified to AENZA on December 11, 2023.
According to the Final Agreement on Settlement and Cooperation, the payment of the civil compensation shall be made within twelve (12) years at a legal interest rate in soles and dollars (3.55% and 1.9% annual interest as of December 31, 2023, respectively). The Company also undertakes to establish a series of guarantees after the court’s approval of the Final Agreement on Settlement and Cooperation (which took place on August 22, 2023 and by which the judge verified that such agreement is in accordance with the law), consisting of (i) two trust agreements that include shares issued by Cumbra Ingeniería S.A.; (ii) a trust on a property owned by the Company; and (iii) a guarantee account with funds equivalent to the annual installment for the following year. Among other conditions, the Final Agreement on Settlement and Cooperation includes a restriction for AENZA and its subsidiaries Cumbra Peru and Unna Transporte from participating in new public infrastructure, construction and road maintenance contracts for two (2) years from the date of the court’s approval of the Agreement. The other member companies of AENZA’s economic group are not subject to any restriction or prohibition to contract with the Peruvian Government.
On December 27, 2023, the initial installment of the civil compensation was paid to the Peruvian Government for S/10.3 million and US$1.2 million. As of December 31, 2023, the Company maintains in its financial statements the total liability associated to the Final Agreement on Settlement and Cooperation for an amount of S/469.8 million (S/323 million and US$39.5 million).
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Investigations and Administrative Proceeding initiated by INDECOPI for Anti-Competitive Practices in the Labor Market in the Construction Sector
On February 7, 2022, Cumbra Peru and UNNA Transporte were notified pursuant to INDECOPI Resolution No. 038-2021/DLC-INDECOPI dated December 28, 2021, that the antitrust authority initiated a sanctioning administrative procedure for alleged illicit practices in the labor market during the period from 2011 to 2017.
On April 7, 2022, Cumbra Peru and UNNA Transporte submitted a proposal for a cease and desist agreement for the early termination of the administrative sanctioning procedure, in which they (i) acknowledged the alleged conduct, (ii) committed to maintain during 2022, 2023 and 2024, a compliance program with free competition rules, and (iii) agreed to pay S/2.7 million in two installments (one after 60 days and the second after 12 months). Pursuant to Resolution No. 054-2022/CLC-INDECOPI dated August 19, 2022, the Commission approved the proposed cease and desist commitment and concluded the sanctioning procedure. As of December 31, 2022, the Company estimated a provision amounting to S/1.4 million related to this proceeding.
Following the established schedule, the subsidiaries have already paid the total amount of the compensation. Likewise, the subsidiaries are complying with their commitment to maintain a compliance program, with supervision of INDECOPI.
On May 9, 2023, our subsidiaries Cumbra Peru and Unna Transporte were notified by INDECOPI, with Resolution No. 052-2023/CLC-INDECOPI, which formally concludes the administrative sanctioning procedure in first instance for alleged illicit practices in the labor market during the period from 2011 to 2017.
This administrative investigation was settled and we have already paid a reduced fine, which was provisioned for on our balance sheet.
Complaint related to the Talara Refinery Project
As of December 31, 2022, Cumbra Peru had a lawsuit pending against Tecnicas Reunidas de Talara S.A.C. (“TRT”) for US$78 million as compensation for damages suffered as a result of various contractual breaches. In turn, TRT filed a counterclaim for US$81 million alleging that Cumbra Peru had breached the sub-contract entered into between the two companies. On December 28, 2020, TRT executed two letters of guarantee issued by Banco Santander Peru S.A., the first one in the amount of US$16 million for a letter of credit and the second one in the amount of US$7.7 million for advance payment of work, despite the fact that the obligations guaranteed by the letter of guarantee were being litigated in the process described in this paragraph. As of December 31, 2021, the balance of this concept at face value amounted to US$33.8 million, equivalent to S/125.8 million.
In December 2022, we reached an agreement with TRT, to settle the claims of both parties. As a result of this agreement, we registered a provision for the collection rights of US$29.6 million, equivalent to S/109.9 million. Also, we were granted the right to receive payments for outstanding invoices in an amount of US$10.3 million before January 31, 2023. As of December 31, 2023, we have collected the full amount agreed upon.
This claim was settled and we have already collected the settled amount.
Termination of Chavimochic Concession - Arbitration Proceeding
In May 2014, Concesionaria Chavimochic S.A.C. (the “Concessionaire”), in which AENZA has a 26.5% interest, entered into a concession agreement with the Peruvian government for the design, construction, operation, and maintenance of major hydraulic works of Chavimochic Project (the “Project”). The construction of the Project started in 2015 with a concession term of twenty-five (25) years and a total investment of US$647 million.
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According to the concession agreement, the works of the third stage of the Project were structured in two phases. To date, the works of the first phase (Palo Redondo Dam) are 70% complete. However, at the beginning of 2017, the procedure for early termination of the concession agreement was initiated due to a breach of contract by the Peruvian government as grantor (the “Grantor”), and all activities were suspended in December 2017. Since the parties did not reach an arrangement, the Concessionaire initiated an arbitration process before the United Nations Commission on International Trade Law (UNCITRAL).
On October 4, 2022, the UNCITRAL notified the parties of its decision, which provided for the early termination of the concession agreement and ordered, among other things, (i) that the Grantor should pay the Concessionaire an amount of US$25.3 million as a consequence of its failure to provide the project control delivery, and (ii) either the execution of 70% of the Concessionaire’s performance bond or the payment of US$25 million, as a result of the Concessionaire’s failure to obtain evidence of financial closing.
In February 2023, the Grantor partially executed the Concessionaire’s performance bond, where AENZA was required to assume a total of US$7.5 million. As of the date of this annual report, the Grantor requested the execution of the balance of the Concessionaire’s performance bond, where AENZA is responsible for US$1.4 million. The Concessionaire is currently coordinating the necessary legal actions for the full execution of the award so that the Grantor complies with the obligations arising therefrom. As of December 31, 2023, we recognized a financial debt in the amount of US$ 7.9 million as a result of the performance bond granted to secure Chavimochic’s obligations under the concession agreement. Likewise, the Concessionaire will initiate legal actions against the Grantor for what it considers an arbitrary execution of the balance of the performance bond without the arbitration court having granted the possibility of executing the bond for a higher amount and without a breach of contract having been attributed to the Concessionaire that would justify such performance.
Tren Urbano de Lima S.A. - Arbitration Request
On February 14, 2024, our subsidiary Tren Urbano de Lima S.A. filed before the General Secretariat of the Arbitration Center of the Chamber of Commerce of Lima, an arbitration request against the Peruvian government for the amount of S/106.9 million, whose main claim is to declare that, according to the concession contract, the Peruvian government is liable for the deficiencies in the design, construction, conservation, maintenance, or deterioration of the concession assets that have occurred prior to the delivery of the concession, as in the case of the footbridges, which were managed by Tren Urbano de Lima S.A.
We have initiated an arbitration claim against the Peruvian Ministry of Transports and Communications.
Tax Proceedings
Our ongoing material tax proceedings are as follows:
| ● | Claim procedures before the Peruvian tax authority (SUNAT), involving tax income results of years 2017, 2019 and 2021, disputed amounts that in aggregate represent S/114.5 million, distributed as follows: (i) S/94.7 million corresponding to Aenza S.A.A.; (ii) S/14.5 million corresponding to Cumbra Ingeniería S.A. and (iii) S/5.3 million corresponding to Viva Negocio Inmobiliario S.A. |
| ● | Appeal before the Peruvian tax courts (Tribunal Fiscal) involving tax income results of years 2009, 2012 to 2016 and 2019 and VAT results of 2015, disputed amounts that in aggregate represent S/344.1 million, distributed as follows: (i) S/161.4 million corresponding to Aenza S.A.A.; (ii) S/171.2 million corresponding to Cumbra Peru (S/115.0 million Cumbra Peru, S/30.6 million Cumbra Ingeniería S.A. S/14.8 million Consorcio Constructor Ductos del Sur, S/10.4 million Consorcio Constructor Chavimochic and S/0.4 million to Consorcio Vial Quinua); (iii) S/1.7 million corresponding to Viva Negocio Inmobiliario S.A.; (iv) S/0.8 million corresponding to Unna Transportes S.A.C. and (v) S/0.6 million corresponding to Unna Energía S.A. |
| ● | Contentious Administrative Process before the Peruvian tax courts (Poder Judicial), disputed amount that in aggregate represents S/93.9 million distributed as follows: (i) regarding tax income results of years 2010 to 2013, S/84.3 million corresponding to the Company; (ii) regarding WHT non-resident of year 2011, S/0.1 million to Viva Negocio Inmobiliario S.A. and (iii) regarding VAT results of years 1998 to 2002, S/9.5 million corresponding to Inmobiliaria OPQ S.A.C. |
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| ● | For our fiscal years 2007 and 2008, the Tax Authority (SUNAT) challenged the deduction of the loss caused by the decrease in the number of shares issued by GME (now OPQ S,A,C, subsidiary owned by Aenza S.A.A.). SUNAT and the tax courts consider that the deduction is not appropriate because GME is an ongoing concern. On May 2019, a Contentious Administrative Process before the Peruvian tax courts was filed for this case and the amount of S/34.0 million was paid (fine plus interest), given that SUNAT exercised its power of coercive collection at the end of the appeal process in the tax courts. The amount paid has already been registered on our balance sheet as “Other Receivable Account” while this matter is still pending in judiciary controversy. In January 2024, Aenza S.A.A. filed a request for admission of a final appeal before the judiciary. SUNAT has carried out consecutive tax audits from the years 2009 to 2016 in order to replicate the effects of the lower tax loss resulting from the observed deduction (disputed amounts represent S/78 million). All this is being appealed before our tax courts. |
Civil lawsuit against Activos Peruanos
Viva and Activos Peruanos S.A. signed a Memorandum of Understanding for the development of a future real estate project on the land of Activos Peruanos S.A. However, during the prefeasibility stage Viva determined that the project was unviable. Faced with Viva’s decision not to continue with the project, Activos Peruanos improperly executed the bond letter issued by Viva. Therefore, Viva has sought compensation for the damage suffered in the amount of US$3.2 million. For its part, Activos Peruanos has sued Viva for an amount of S/89.5 million soles for damages. Activos Peruanos’ claim was granted but was subsequently declared null. A new judgment is currently pending.
DHMONT Arbitration
DHMONT started an arbitration claim against Viva, for it to return 5,000 m2 of area where the “Parque de Comas” Project is developed. Viva is the owner of approx. 296,000 m2 of land for the development of such project. DHMONT claims that when land was divided for VIVA and DHMONT, such division was not correct considering the alignment of the adjacent tracks.
The arbitral tribunal rendered an award in favor of Viva. However, DHMONT presented a judicial claim to annul the arbitration decision. The Judiciary rejected the claim. Nevertheless, DHMONT initiated a constitutional proceeding to annul the resolution by which The Judiciary rejected its claim. In July 2023, the claim was rejected. DHMONT has appealed such ruling. The procedure is currently before the Peruvian supreme court.
The loss of ownership of the 5,000 m2 of area would represent a loss of approximately US$4,000,000.
Civil lawsuit against MVCS
Viva signed agreements with the Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento) (“MVCS”) and others for the development of a real estate project on land located in the Ancón district, to the north of Lima. However, the project could not be developed for reasons attributable to the MVCS. As a result, Viva terminated the contract and filed a lawsuit for damages in the amount of S /116 million. The procedure is currently in trial period.
Cumbra Peru S.A. v. COTINAVEC (PUCP Case N° 2018-418-48)
Arbitration for the termination of the joint venture agreement related to the electromechanical package of Talara Refinery. Cumbra Peru seeks to declare that Navec (parent company) and Cotinavec are both part of the same economic group, so can be declared joint and several responsible for the termination of the contract. In February 2021 the tribunal determined that Navec and Cotinavec belong to the same economic group, so the tribunal declared Navec as part of the arbitration. Cumbra Peru is claiming the payment of approximately US$4.0 million (equivalent to 20% of losses) and COTINAVEC through the counterclaim is claiming a payment of US$19.1 to Cumbra Peru for damages derived from the termination of the joint venture agreement. In June 2023, the tribunal ruled that Cotinavec was indeed in breach of contract as it was proven that it abandoned the work site and therefore Cotinavec’s claim for US$19.1 million was declared groundless. Likewise, Cumbra’s right to claim project losses estimated at S/14.4 million was recognized by the tribunal. Technical documentation is currently being prepared to initiate a new arbitration to claim payment for these losses.
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Cumbra Peru S.A. v. STRACON (AMCHAM Case N° 006-2021)
In February 2021, Cumbra Peru was notified of the request for arbitration filed by STRACON, in which they claim payment of S/7.0 million, equivalent to 87.59% of the total tax contingencies payable under the share purchase agreement signed in 2015, plus interest. The arbitration concluded, and Cumbra Peru was ordered to pay approximately S/5.0 million. STRACON has initiated the enforcement of an arbitral award and the Judiciary has ordered Cumbra Peru to pay. On November 20, 2023, Cumbra Peru challenged the enforcement of the award.
Consorcio Ermitaño. v. SEDAPAL (CCL Case N° 679-2019-CCL)
Sedapal requested the tribunal to declare as invalid, the termination of Contract N° 069-2016-SEDAPAL by Consorcio Ermitaño (to which Cumbra Perú S.A. is a part of). On the other hand, the Consortium requests that the validity of the termination of the contract be ratified and the application of penalties imposed be left without effect, being that such amount is of S/25.5 million. In November 2022, the Consortium was notified with the award that declared valid the termination of the contract declared by the consortium, waived a penalty for delay in the correction of observations in the Project Acceptance amounting to S/19.8 million and declared in force other penalties amounting to S/6.6 million. Sedapal has filed a lawsuit for annulment of the arbitration award, which is currently being processed.
Consorcio Vial Quinua. v. PROVIAS (Ad Hoc Case N° I247-2019)
PROVIAS requested the tribunal to determine the responsibility of the Consorcio Vial Quinua (to which Cumbra Peru is a part) for the alleged existence of construction deficiencies or hidden defects in the execution of the Quinua - San Francisco highway, and order the payment of S/6.0 million. In April 2024 the hearing for the illustration of facts was held. An expert hearing was scheduled for May 2024.
Consorcio Ítalo Peruano v. Instituto Nacional de Enfermedades Neoplásicas (INEN) (Case N° S-061-2020/SNA-OSCE)
The consortium submitted an arbitration claim requesting the tribunal to rule the consortium fulfilled with the cure of all observations made by INEN, and therefore, any application of penalties by INEN for such observations are groundless. In a worst-case scenario, if the tribunal considers that penalties are merited, these penalties may sum up to S/2.9 million. Notwithstanding this, it is important to remark that in 2023, in other arbitrations involving INEN, tribunals rendered four arbitration awards favorable to the consortium for an amount of S/4.6 million for concepts related to contractual term extensions. Therefore, if the tribunal considers that merited penalties sum up to S/2.9 million, the consortium may still have a favorable net result (after deducting the penalties from the four favorable awards granted to the consortium).
Cumbra Peru v. Empresa de Generación Eléctrica – EGEMSA (PUCP Case N° 829-233-15)
In this arbitration initiated by Cumbra Peru against EGEMSA for the reception of the electromechanical work, Cumbra Peru requests the tribunal to rule the observations as invalid, and therefore, the construction works as correctly executed, delivered by Cumbra Peru and received by EGEMSA. In case the tribunal established that there are valid observations made by EGEMSA, Cumbra Peru has estimated the cost of remedying these observations at US$3.1 million. The tribunal rendered an arbitration award, however, due to gross errors in its motivation, both parties requested the annulment of the award. The award was indeed annulled for the reasons aforementioned and a conformation of a new tribunal has to be decided by the Arbitration Center of Universidad Católica del Perú.
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Cumbra Perú S.A. v. Empresa de Generación Eléctrica – EGEMSA (File N° 417-2018)
Cumbra initiated an arbitration against EGEMSA in order to obtain $13,139,441 under Contract No. 09-2009. The Arbitral Tribunal declared Cumbra’s claim founded. Nevertheless, EGEMSA requested the annulment of the award. The Judiciary declared EGEMSA’s request founded, ordering the Arbitral Tribunal to issue a new award. The Arbitral Tribunal issued a new award and again declared Cumbra’s claim founded. However, EGEMSA initiated a new judicial process requesting the annulment of the award. The Judiciary again declared the annulment of the award. On November 30, 2023, the appeal filed by Cumbra against the judgment declaring the favourable arbitration award null and void was declared inadmissible.
Cumbra Perú S.A v. Autoridad de Transporte Urbano – ATU (PUCP Case N° 2771-143-20)
ATU requested the tribunal to determine the responsibility of companies of the former Consorcio Tren Eléctrico (to which Cumbra Perú S.A. was a part of) for the alleged existence of construction deficiencies or hidden defects in the execution of the relocation of primary sewer pipes in the district of San Juan de Lurigancho and order the payment of S/181.9 million
Cumbra Perú S.A v. Marcobre (CCL Case N° 0076-2024-CCL)
Cumbra Peru requests to the tribunal to rule the breach of Contract for the Technical Assistance - Terminals (“Contract”) by Marcobre in regard of its obligation to pay in favor of Cumbra Peru US$3.1 million plus taxes and interests. On the other hand, Marcobre submitted a counterclaim in which it requests the payment of approximately US$13.0 million by Cumbra Peru due to alleged breach of the Contract related to the submission of all bonds under the Contract and the obligation to remedy defects in the construction works. Additionally, Marcobre requests the tribunal to include in this arbitration process the controversies related to the other contract executed by the parties (Oxide Plant and Vats Installation Contract).
Red Vial 5 S.A.
There are 18 judicial processes derived from a traffic accident in the Norvial Concession, through which the debtors impute civil liability to Norvial for the alleged damages suffered due to the death of their relatives in an accident that occurred on 01.02.18 in the Serpentín de Pasamayo on the sole basis of a police technical report in which Norvial was classified as an alleged contributory agent in the accident. Norvial maintains that it is not responsible because it has not breached any of its contractual or legal obligations as a concessionaire. The total amount of the claims is approximately US$20.0 million.
Labor Matters
Aenza and its subsidiaries have labor disputes with former employees in the ordinary course of business, with an aggregate contingency (probable loss) of S/5.7 million as of December 31, 2023, which has been estimated considering both the labor disputes of Aenza and its subsidiaries.
In addition, at the end of March of 2024, the Company received a labor claim of S/ 28 million by an association of former employees of Unna Transporte S.A.C., which demand to be recognized as workers of the concessionaires to which Unna Transporte rendered subcontracting activities (Red Vial 5, Carretera Andina del Sur).
Dividends and Dividend Policy
Dividend Policy
Pursuant to Articles 230 and following provisions of the General Corporations Law, the General Shareholders’ Meeting of AENZA may agree on the distribution of dividends out of the profits obtained or unrestricted reserves, once the audited annual financial statements have been approved, and considering the proposal made by the Board of Directors of the Company.
The conditions and opportunity for payment of dividends shall be defined by the General Shareholders’ Meeting or by the Board of Directors in case of delegation, taking into account the liquidity situation of the Company and its financial stability.
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The General Shareholders’ Meeting may resolve to distribute dividends in addition to those approved by the Annual Shareholders’ Meeting and may delegate to the Board of Directors the power to decide on the distribution of interim dividends. In any case, the resolution for the distribution of dividends must necessarily observe the restrictions and commitments contained in the financing agreements entered into by the Company, and especially in the Final Agreement on Settlement and Cooperation, pursuant to which (i) dividends may not be distributed until at least 40% of the civil reparation has been paid, and (ii) once the 40% threshold has been exceeded, for each Sol or U.S. dollar destined to the payment of dividends, the Company must amortize in the same amount the payment of the civil reparation.
Payment of Dividends
Dividends are paid to holders of our common shares as of a record date determined by us. In order to allow for the settlement of securities, under the rules of the Peruvian Securities Commission (Superintendencia del Mercado de Valores), investors who purchase shares of a publicly held company three business days prior to a dividend payment date do not have the right to receive such dividend payment. Dividends on issued and outstanding common shares are distributed pro rata.
Certain of our debt or other contractual obligations may restrict our ability to pay dividends. For example, we will not be able to make any dividend payments until all outstanding amounts under the Financial Stability Framework Agreement are repaid. In addition, the indentures of the senior secured notes issued by Línea 1 and the corporate bonds issued by Norvial contain certain customary covenants, including restrictions on our and our subsidiaries’ ability to pay dividends if we are in default under the agreement. Further, the corporate bonds of Cumbra Peru impose a limitation on Cumbra Peru’s ability to distribute dividends to us. Our rights over our dividends in Unna Energía, Red Vial 5 S.A. and Línea 1, have been assigned and transferred to a trust as collateral securing a bridge loan facility. The release of such dividends in our favor is conditioned on the fulfilment of certain covenants included in the trust agreement, including, among others, payment of debt service. “See Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”
Holders of common shares are not entitled to interest on accrued dividends. In addition, under Article 232 of the Peruvian Corporate Law, the right to collect accrued dividends declared by a publicly held company expires ten years from the original dividend payment date.
Previous Dividend Payments
No dividends were declared or paid from 2022-2023 for our common shares and none in 2024 is expected.
B. Significant Changes.
Except as disclosed in “Item 5. Operating and Financial Review and Prospects— Key Developments” and Note 36 to our audited annual consolidated financial statements included in this annual report, we have not experienced any significant changes since the date of our audited annual consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Our common shares are registered in the Public Registry of Securities held with the Peruvian Securities Commission and are listed on the Lima Stock Exchange under the symbol “AENZAC1.” On April 30, 2024, the closing price on the Lima Stock Exchange was S/0.70 per common share. As of April 30, 2024, 16 record holders of our common shares were located in the United States, according to CAVALI.
On October 31, 2023, the Board of Directors approved the intention to initiate the delisting process of shares represented by ADS from the NYSE, the deregistration process of AENZA from the SEC and the termination of our ADS program. On November 16, 2023, AENZA notified the NYSE of its intention to voluntarily delist the ADSs from the NYSE. AENZA also notified the Depositary under our ADS program of the termination of the ADS program. On November 27, 2023, we filed a Form 25 with respect to the delisting of our ADSs from the NYSE. The delisting became effective on December 7, 2023, and the termination of the ADS program was effective on February 26, 2024.
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B. Plan of Distribution
Not applicable.
C. Markets
Trading in the Peruvian Securities Market
Lima Stock Exchange
As of December 31, 2023, there were 257 companies listed on the Lima Stock Exchange. Established in 1970, the Lima Stock Exchange is Peru’s only securities exchange. On November 19, 2003, the members of the Lima Stock Exchange approved to convert its corporate status to a publicly held corporation. In 2021, Lima Stock Exchange Group - Holding Company - was created. As of December 31, 2023, the Lima Stock Exchange Group had a share capital of S/132,893,960, divided into 173,659,481 class “A” shares and 8,432,859 class “B” shares. As of December 31, 2022, the Lima Stock Exchange Group had a share capital of S/162,092,340, divided into 173,659,481 class “A” shares and 8,432,859 class “B” shares. Class “A” shares are entitled to one vote per share while class “B” shares do not have voting rights.
Trading on the Lima Stock Exchange is primarily done on an electronic trading system that became operational in August 1995. From the second Sunday of March through the first Sunday of November of each year, trading hours are Monday through Friday (except holidays) as follows: 8:20 a.m.-8:30 a.m. (pre-market ordering); 8:30 a.m.-2:52 p.m. (trading); 2:52 p.m.-3:00 p.m. (after-market sales); and 3:02 p.m.-3:10 p.m. (after-market trading). At all other times, trading hours are from Monday to Friday (except holidays) as follows: 9:00 a.m.-9:30 a.m. (pre-market ordering); 9:30 a.m.-3:55 p.m. (trading); 3:55 p.m.-4:00 p.m. (after-market sales); and 4:00 p.m.-4:10 p.m. (after-market trading).
Substantially all of the transactions on the Lima Stock Exchange are traded on the electronic system. Transactions during the electronic sessions are executed through brokerage firms and stock brokers on behalf of their clients. Brokers submit orders in the order in which they are received. The orders must specify the type of security as well as the amount and price of the proposed sale or purchase. In order to control price volatility, the Lima Stock Exchange imposes a 15-minute suspension on trading when the price of a security varies on a single day by more than 15% for Peruvian companies and 30% for non-Peruvian companies.
Certain information regarding trading on the Lima Stock Exchange is set forth in the table below:
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||
| Market capitalization (in millions of Soles)(1) | 537,389 | 599,918 | 593,664 | 541,275 | 659,899.8 | |||||||||||||||
| Volume (in millions of Soles) | 18,154 | 20,942 | 22,677 | 14,179 | 8,453 | |||||||||||||||
| Average daily trading volume (in millions of Soles) | 72 | 82 | 90 | 57 | 33 | |||||||||||||||
| (1) | End-of-period figures for trading on the Lima Stock Exchange. |
The stock market capitalization of companies listed on the Lima Stock Exchange was US$177.7 billion at the end of 2023, compared to US$165.5 billion, US$148.5 billion, and US$ 141.7 billionat the end of 2020, 2021, and 2022, respectively.
Total market volume in 2023 was US$2.2 billion, reflecting a 39.4% decrease compared with 2022. Equity market volume, which represented 74.0% of total market volume, ended the 2023 year at US$1.7 billion, 38.1% lower than the previous year. The repo market, which represented 7.1% of total market volume, reported volume of US$160.52 million in 2023, reflecting a decrease of 7.0%.
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The total number of operations in the market in 2023 decreased by 9.0%, closing the year at 118,071 operations. The number of operations in the equity market in 2022 decreased by 20.0% to 129,690 operations.
In 2023, the S&P/BVL Peru General Index (Índice S&P/BVL Peru General) reached 25,960.01 points, increasing 21.70% compared to 2022. In 2022, it reached 21,330.33 points, increasing 1.04% compared to 2021, and in 2021, it reached 21,111.73 points, increasing 1.39% compared to 2020.
Regulation of the Peruvian Securities Market
The regulatory framework for the Peruvian securities market is established in the Securities Market Law approved by Legislative Decree No. 861, as amended (Ley del Mercado de Valores), and the resolutions issued from time to time by the Peruvian Securities Commission. The purpose of the Securities Market Law is to promote the ordered development and transparency of the Peruvian securities markets and provide adequate protection for investors and the principles under which the Peruvian securities market is intended to operate. The Securities Market Law contains the general rules for: (i) primary and secondary public offerings of securities; (ii) public offering of securities for acquisitions and sales; (iii) local and international offerings, including simultaneous offerings; (iv) the Public Registry of Securities; (v) reporting obligations of material information (hechos de importancia) by the issuers of securities recorded in the Public Registry of Securities and by the entities that are subject to the regulation and supervision of the Peruvian Securities Commission; (vi) the enforcement of insider trading; (vii) privileged information and confidentiality regulations and prohibitions against price manipulation; (viii) the broker-dealers; (ix) the Lima Stock Exchange; (x) CAVALI (the settlement and registry entity for transactions executed on the Lima Stock Exchange); (xi) other entities that are required to be registered at the Peruvian securities market Public Registry of Securities; (xii) capital market instruments and operations, including securitizations; and (xiii) mutual funds and investments funds publicly placed and their respective management companies.
The Peruvian securities market is regulated and supervised by the Peruvian Securities Commission, a governmental entity reporting to the Peruvian Ministry of Economy and Finance, with functional, administrative, economic, technical and budgetary autonomy. The Peruvian Securities Commission is governed by the Superintendent, designated by the Peruvian Ministry of Economy and Finance, and by a five-member Board of Directors convened by the Superintendent (who acts as Chairman of the board). The other four members are appointed by the government under applicable legislation. The Peruvian Securities Commission issues from time to time resolutions which provide specific regulations or may impose sanctions in cases of violations of the Securities Market Law or the resolutions issued by the Peruvian Securities Commission.
The Peruvian Securities Commission, in order to achieve the Securities Market Law’s purposes, has broad regulatory and supervisory powers, including (i) issuing general mandatory rules; (ii) supervision and oversight of compliance with applicable legislation (including the power to order inspections and require the submission of information and documentation by entities that are under its jurisdiction and summon and interrogate any person that may contribute to its investigations); (iii) imposing sanctions; (iv) managing the Peruvian securities market public registry; (v) verifying that public offerings meet filing requirements and that the securities subject to such offerings are duly recorded at the Peruvian securities market public registry of securities; (vi) authorizing the incorporation and functioning of entities under its scope of supervision; and (vii) monitoring the content and accuracy of the financial and other information that is filed with the Peruvian Securities Commission. The Peruvian Securities Commission is responsible for the enactment, interpretation and enforcement of rules and regulations issued under the Securities Market Law.
Disclosure Obligations
Issuers of securities registered with the Peruvian Securities Commission are required to disclose material information relating to the issuer. Pursuant to the Securities Market Law and relevant regulations enacted thereunder, all material information in connection with the issuer of registered securities (such as our common shares), its activities or securities issued or secured by such issuer which may influence the liquidity or price of such securities must be disclosed. Accordingly, issuers must file with the Peruvian Securities Commission mainly two types of information: (i) financial information, including unaudited interim financial statements on a quarterly basis (which are not required to be subject to limited review by external auditors), and audited annual consolidated financial statements on an annual basis, and (ii) material information relating to the issuer and its activities that may significantly affect the price, offering or trading of the issued securities, and in general, all the information that may be relevant for investors to be able to make investment decisions.
In order to comply with the foregoing disclosure obligations, issuers must disclose information to the Peruvian Securities Commission and, if the securities are listed, with the Lima Stock Exchange as soon as practicable but not later than the day on which the event took place, or the issuer became aware of such information.
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D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The information set forth in Exhibit 1.01, “By-Laws of the Registrant, as currently in effect” is incorporated herein by reference.
C. Material Contracts
CS Peru Infrastructure Loan
On July 31, 2019, the company entered into a medium-term loan credit agreement for US$35 million (equivalent to S/112.9 million) with CS Peru Infrastructure Holdings LLC, the proceeds of which were used as working capital for the company and its subsidiaries, Cumbra Peru and Adexus. The term of the loan was three years, with quarterly installments of principal beginning on the 18th month. On February 28, 2020, the company and the initial lender signed an amendment, waiver and consent in respect of this event of default, in consideration for a prepayment by the company of US$10 million, together with accrued interest and a make-whole premium. After this payment, the principal amount outstanding under the term loan was US$22 million. In August 2021, the total amount outstanding was paid in full.
For more information, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.” This agreement and the amendment thereto have been incorporated by reference as Exhibit 10.01 to this annual report.
Financial Stability Framework Agreement
In July 2017, the Company and its subsidiaries (Cumbra Peru, Construyendo País S.A., Vial y Vives - DSD and Concesionaria Vía Expresa Sur S.A.) signed a Financial Stability Framework Agreement with the following financial institutions: Scotiabank Perú S.A., Banco Internacional del Perú S.A.A., Banco BBVA Perú S.A., Banco de Crédito del Perú S.A., Citibank del Perú S.A. and Citibank N.A. The objectives of the Financial Stability Framework Agreement were: to guarantee Cumbra Peru a syndicated revolving line of credit for working capital, a non-revolving line of credit to finance repayment commitments subject to performance bonds; to guarantee lines of credit for the issuance of performance bonds and to commit to maintain the existing letters of credit issued to Cumbra Peru’s requirements.
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At December 31, 2023, the Company was in compliance with the obligations and covenants established in the Financial Stability Framework Agreement.
On March 29, 2022, S/28.2 million and US$0.3 million corresponding to the total balance of the direct debt of the Financial Stability Framework Agreement (US$ 7.4 million, equivalent to S/29.5 million, as of December 31, 2021) were paid, and the line of credit for the issuance of letters of guarantee remains in place. This agreement and the amendment thereto have been incorporated by reference as Exhibit 10.05 to this annual report.
GSP Concession and Subordination Arrangements
In November 2015, we acquired a 20% interest in GSP and obtained a 29% interest in CCDS through its subsidiary Cumbra Peru.
On July 22, 2014, GSP signed a Concession Agreement with the Peruvian government to build, operate, and maintain a natural gas pipeline to meet the demand of cities in the south of Peru. Additionally, GSP signed an engineering, procurement, and construction agreement with CCDS. A summary of the provisions of this Concession Agreement has been incorporated by reference as Exhibit 10.03 to this annual report.
The Company made an investment of US$ 242.5 million (S/ 811 million) and assumed 21.49% of the performance bond established in the concession agreement for US$ 262.5 million and 21.49% of the guarantee for a bridge loan of US$ 600 million. On January 24, 2017, the MEM announced the early termination of the Concession Agreement under Clause 6.7 thereof, for not having provided evidence of the financial closing within the contractual term resulting in the immediate enforcement of the performance bond.
The situation described in the previous paragraph caused Management to recognize the impairment of its total investment (US$ 242.5 million) between 2016 and 2019, and required the register of the account receivable resulting from the execution of the counter-guarantees granted by AENZA in favor of the issuer of the guarantee of the concession contract for US$ 52.5 million and in favor of the syndicate of banks that granted the bridge loan to GSP for US$ 129 million. According to the Concession Agreement, the guarantees were paid on behalf of GSP, therefore, AENZA recognized the right to collect from GSP in the amount of US$ 181.5 million, which were recorded in 2016 as accounts receivable from related parties. Likewise, Cumbra Peru recognized the value of accounts receivable from CCDS in the amount of US$ 73.5 million and lost profits for US$ 10 million, which correspond to receivables from GSP.
On October 11, 2017, the agreement deed for the delivery of the assets of the South Peruvian gas pipeline concession between GSP and MEM was signed. The assets include the works, equipment, facilities and engineering studies provided for the execution of the project.
Upon termination of the Concession Contract, and in accordance with the provisions of Clause 20 thereof, the Peruvian state was obligated to hire an internationally recognized auditing firm to calculate the VCN, and to call up to three auctions on GSP’s assets. However, to date, the Peruvian state has failed to comply with these contractual obligations. The amount of the VCN was calculated at US$2,602 million by an independent auditing firm hired by GSP as of December 31, 2016. This figure was subsequently adjusted to US$2,110 million, as a result of variations in the balances related to the works carried out by the consortium, which in turn is reported in its audited financial statements as of December 31, 2017.
On December 21, 2018, the company asked the Peruvian government for direct treatment and requested the payment of the VCN in favor of GSP. On October 18, 2019, the company filed with the CIADI an arbitration request. On December 27, 2019, the company withdrew the arbitration request in compliance with a preliminary collaboration and benefits agreement signed with the Attorney General´s Office and Ad-hoc Public Prosecutor’s Office on the same date (see Note 1 to our audited annual consolidated financial statements included in this annual report). Withdrawing the arbitration request before CIADI does not result in the loss of collection rights of the company against GSP and does not restrict, limit, or impede GSP from asserting its rights against the Peruvian government.
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The company and its internal and external legal advisors consider that the payment owed by the Government to GSP for the VCN are not within the scope under Law 30737 that ensures the immediate payment of civil compensation in favor of the Peruvian state in cases of corruption and related crimes, since this payment does not include any profit margin and/or does not correspond to the sale of assets related to the project, but to a reimbursement for the investment made by the concessionaire.
As of December 4, 2017, GSP entered into a bankruptcy proceeding before INDECOPI. GSP has claims recognized by INDECOPI of US$0.4 million and US$169.3 million, the latter held in trust in favor of GSP’s creditors. It also has indirectly recognized claims for US$11.8 million. On the other hand, the claim of Cumbra Peru is indirectly recognized in INDECOPI through Consorcio Constructor Ductos del Sur in an amount of US$88.7 million. As of the date of this report, GSP is in the process of liquidation and AENZA is chairing the creditor committee.
On April 11, 2023, the Liquidation Agreement was approved, which defines the framework for the liquidator’s actions. The Liquidation Agreement includes the granting of powers to the liquidator with respect to representation, administrative, contractual and other relevant powers that allow him to comply with the obligations for which he was appointed, as well as the actions he is allowed to take in order to recover GSP’s assets and in accordance with the mechanisms set forth in the General Law of the Insolvency System.
On April 13, 2023, and under the powers granted to him by the Liquidation Agreement, the liquidator requested the MEM to initiate the Direct Treatment procedure stipulated in the Concession Agreement.
On September 12, 2023, INDECOPI notified GSP of Resolution No. 4069-2023/CCO-INDECOPI which resolved to declare null and void the committee’s resolution approving the Liquidation Agreement because the Liquidation Agreement does not foresee the modality and conditions of realization of the GSP’s assets other than the VCN (direct sale, auction, dation, etc.).
On November 21, 2023, the meeting of creditors was held with the purpose of correcting the defect declared in the aforementioned resolution, through the approval of a new liquidation agreement. However, this proposal only reached 59% of favorable votes and therefore did not reach the qualified majority (66.67% of favorable votes) required by law. Likewise, on the same day, the chairman of the committee, as well as other creditors requested INDECOPI to declare the liquidation of GSP.
In view of the above, on December 28, 2023, INDECOPI ordered the ex officio liquidation of GSP and that its Technical Secretariat of the Commission, dated on January 12, 2024, convene a meeting of creditors for January 29, 2024, in order to appoint a liquidator for the process and approve a new liquidation agreement. The Meeting is formed with the Creditors in attendance and approve the corresponding proposals by simple majority. Therefore, on the referred day, with 59% of the votes in attendance, the appointment of Alva Legal Asesoria Empresarial S.A.C. as GSP’s liquidator and the proposed Liquidation Agreement were approved. The liquidation process of GSP continues its course, as well as the necessary actions for the recovery of VCN.
As of December 31, 2023, the net value of the account receivable from GSP is US$ 142.4 million, equivalent to S/ 527.7 million (US$ 142.4 million equivalent to S/ 542.4 million at December 31, 2022), which comprises the recognition in the following entities of the Company: (i) AENZA holds US$ 63.9 million (equivalent to S/ 236.6 million) discounted to present value net of impairment and the effect of the exchange difference (US$ 63.9 million equivalent to S/ 243.2 million at December 31, 2022) and; (ii) Cumbra Peru holds US$ 78.5 million (equivalent to S/ 291.1 million) discounted to present value, net of the effect of the exchange difference (US$ 78.5 million equivalent to S/ 299.2 million at December 31, 2022).
The Company’s management maintains the recovery estimate in 8 years, applying a discount rate of 4.92%. These estimates generated during 2022 a present value effect of S/ 72.2 million, which has been recognized in the consolidated statement of profit or loss under the caption “Interest for present value of financial asset or liabilities”.
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Convertible Bonds
On August 13, 2021, AENZA issued Convertible Bonds in a total principal amount of US$89.9 million. The Convertible Bonds matured in February 2024, beared interest at a rate of 8%, and were payable quarterly. The Convertible Bonds were convertible into shares as of the sixth month from the date of issuance. In accordance with the terms and conditions of the Convertible Bonds, holders of Convertible Bonds in a principal amount equivalent to US$11 million exercised their conversion rights and on February 28, 2022 we issued 37,801,073 new common shares. Additionally, holders of Convertible Bonds in a principal amount equivalent to US$78.9 million exercised their conversion rights and, on March 31, 2022, we issued an additional 287,261,051 new common shares. After these conversions, the Convertible Bonds were fully cancelled.
Bridge Loan
On March 17, 2022, the Company entered into a bridge loan agreement for up to US$ 120 million (S/ 445.6 million), with a group of financial institutions comprised by Banco BTG Pactual S.A. - Cayman Branch, Banco Santander Peru S.A., HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC, and Natixis, New York Branch. The financing is expected to be repaid over a period of 18 months, in quarterly interest installments and is secured, subject to the fulfillment of certain conditions precedent, by a flow trust (first lien), a pledge over the shares in Unna Energia S.A. (first lien), and a trust on the shares of Viva Negocio Inmobiliario S.A.C. (second lien). On October 5, 2023 and December 27, 2023 payments of US$ 8 million (equivalent to S/ 29.1 million) and US$ 12 million (equivalent to S/ 43.6 million), respectively, were made under the bridge loan agreement. In addition, on December 27, 2023, the term extension of the bridge loan agreement was signed for up to US$ 100 million for a period of twelve months payable in quarterly interest installments. This agreement has been incorporated by reference as Exhibit 10.02 to this annual report.
As of December 31, 2023, the loan amounts to S/ 379.9 million (as of December 31, 2022, it amounted to S/ 463.8 million), comprising principal of S/ 371.3 million, plus interest and net deferred charges of S/ 8.6 million (as of December 31, 2022, S/ 458.4 million and S/ 5.4 million, respectively).
As of December 31, 2023, the Company has complied with the covenants established in the loan agreement.
D. Exchange Controls
Since August 1990, there have been no exchange controls in Peru and all foreign exchange transactions are based on free market exchange rates. Prior to August 1990, the Peruvian foreign market consisted of several alternative exchange rates. Additionally, during the 1990s, the Peruvian currency experienced a significant number of large devaluations, and Peru has consequently adopted, and operated under, various exchange rate control practices and exchange rate policies, ranging from strict control over exchange rates to market determination of rates. Current Peruvian regulations on foreign investment allow the foreign holders of equity shares of Peruvian companies to receive and repatriate 100 percent of the cash dividends distributed by such companies. Such investors are allowed to purchase foreign exchange at free market currency rates through any member of the Peruvian banking system and transfer such foreign currency rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction.
E. Taxation
Peruvian Tax Considerations
The following is a general summary of material Peruvian tax matters under Peruvian law, as in effect on the date of this annual report and describes the principal tax consequences of ownership of common shares by non-resident individuals or entities (“Non-Peruvian Holders”). Legislative, judicial or administrative changes or interpretations may, however, be forthcoming. Any such changes or interpretations could affect the tax consequences to holders of common shares and could alter or modify the conclusions set forth herein. This summary is not intended to be a comprehensive description of all of the tax considerations that may be relevant to a decision to make an investment in the common shares. In addition, it does not describe any tax consequences arising under the laws of any taxing jurisdiction other than Peru or applicable to an individual or entity resident of Peru or to a person with a permanent establishment in Peru.
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For purposes of Peruvian taxation:
| ● | individuals are residents of Peru, if they are Peruvian nationals who have established their place of residence in Peru or if they are foreign nationals with a permanence of more than 183 days in Peru in any 12-month period (in the latter case, the condition of Peruvian resident can only be acquired as of the 1st of January of the year following the fulfillment of residence conditions); and |
| ● | legal entities are residents of Peru if they are established or incorporated in Peru. |
Cash Dividends and Other Distributions
Cash dividends paid to Non-Peruvian Holders with respect to common shares have been subject to Peruvian withholding income tax at a rate of 5% since 2017. As a general rule, the distribution of additional common shares representing profits, the distribution of shares which differ from the distribution of earnings or profits, as well as the distribution of preemptive rights with respect to common shares, which are carried out as part of a pro rata distribution to all shareholders, will not be subject to Peruvian income tax or withholding taxes.
Capital Gains
Pursuant to Article 6 of the Peruvian income tax law, individuals and domiciled entities in Peru are subject to Peruvian income tax on their worldwide income while non-domiciled entities – including branches, agencies (agencias), and permanent establishment (establecimientos permanentes) of non-domiciled entities – are subject to Peruvian income tax only on their Peruvian source income.
Peruvian income tax law provides that income derived from the disposal of securities issued by Peruvian entities is considered Peruvian source income and is therefore subject to income tax. Under Peruvian income tax law the taxable income resulting from the disposal of securities is equal to the difference between the sale price of the securities (which may not be less than their fair market value) and their tax basis.
Capital gains resulting from the disposal of common shares will be subject to an income tax rate of either 5% or 30%, depending on where the transaction takes place. If the transaction is consummated in Peru, any capital gain will be subject to an income tax rate of 5%; and if the transaction is performed outside of Peru, any capital gain will be subject to a 30% income tax rate. Peruvian income tax law regulations have stated with respect to the transfer of common shares, that transactions are deemed to be consummated in Peru if the common shares are transferred through the Lima Stock Exchange.
Any Non-Peruvian Holder who acquires common shares will have the following tax basis: (i) for common shares purchased by the transferor, the acquisition price paid for the shares; (ii) for common shares received by the transferor as a result of a share capital increase because of a capitalization of net profits, the par value of such common shares; (iii) for other common shares received free of any payment, tax basis will be: (x) zero or the cost borne by the transferor, in the case of individuals and (y) the fair market value at the time of the acquisition, in the case of entities; and (iv) for common shares of the same type acquired at different opportunities and at different values, the tax basis will be the weighted average cost. In cases where common shares are sold by Non-Peruvian Holders outside the Lima Stock Exchange, the tax basis must be certified by the Peruvian tax administration prior to the time payment is made to the transferor; otherwise, it would not be possible to deduct the tax basis and the 30% Peruvian income tax would apply to the total sale price. Under Peruvian income tax law, tax basis certification is granted by the Peruvian tax authorities within 30 business days after the filing of the corresponding application. If the Peruvian tax authorities do not respond within the abovementioned period, the tax basis certification so requested will be deemed automatically approved.
In any transaction relating to Peruvian securities through the Lima Stock Exchange, CAVALI will act as withholding agent of the Peruvian income tax. If the purchaser is a resident in Peru and the sale is not performed through the Lima Stock Exchange, the purchaser will act as withholding agent. In other cases, the transferor shall be obliged to self-assess the tax and pay it to the Peruvian tax authorities within the first 12 business days of the month following the transfer.
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Other Considerations
No Peruvian estate or gift taxes are imposed on the gratuitous transfer of common shares. No stamp, transfer or similar tax applies to any transfer of common shares, except for commissions payable by seller and buyer to the Lima Stock Exchange, fees payable to the Peruvian Securities Commission, brokers’ fees (about 0.05% to 0.50% of value sold by legal entities) and value added tax (at the rate of 18%) on commissions and fees. Any investor who sells its common shares on the Lima Stock Exchange will incur these fees and taxes upon purchase and sale of the common shares.
United States Federal Income Tax Considerations
The following summary describes certain U.S. federal income tax consequences to a U.S. Holder (as defined below) of the ownership and disposition of our common shares. This summary deals only with common shares held as capital assets for U.S. federal income tax purposes (generally, property held for investment). As used herein, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| ● | a trust if it (i) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
This summary does not represent a detailed description of the U.S. federal income tax consequences applicable to you in light of your particular circumstances and does not address the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:
| ● | a dealer in securities or currencies; |
| ● | a financial institution; |
| ● | a regulated investment company; |
| ● | a real estate investment trust; |
| ● | an insurance company; |
| ● | a tax-exempt organization; |
| ● | a person holding our common shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; |
| ● | a trader in securities that has elected the mark-to-market method of accounting for your securities; |
| ● | a person liable for alternative minimum tax; |
| ● | a person who owns or is deemed to own 10% or more of our stock (by vote or value); |
| ● | a person required to accelerate the recognition of any item of gross income with respect to our common shares as a result of such income being recognized on an applicable financial statement; |
| ● | a partnership or other pass-through entity for U.S. federal income tax purposes; or |
| ● | a person whose “functional currency” is not the U.S. dollar. |
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The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. There is currently no income tax treaty between the United States and Peru that would provide for U.S. federal income tax consequences different than the consequences under the foregoing authorities.
If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partnership or a partner of a partnership holding our common shares, you should consult your tax advisors.
This summary does not address the effects of the U.S. federal Medicare tax on net investment income or other U.S. federal tax consequences (such as U.S. federal estate or gift tax consequences), and does not address the effects of any state, local or non-U.S. tax laws. If you are considering the purchase of our common shares, you should consult your own tax advisors concerning the U.S. federal income tax consequences to you in light of your particular situation as well as any consequences arising under other U.S. federal tax laws and the laws of any other taxing jurisdiction.
Except as specifically noted below under “—Passive Foreign Investment Company,” the following discussion assumes we will not be a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes.
Taxation of Dividends
The gross amount of distributions, other than certain pro rata distributions of common shares, on the common shares (including amounts withheld to reflect Peruvian withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
To the extent that the amount of any distribution (including amounts withheld to reflect Peruvian withholding taxes) exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the common shares (but not below zero), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be reported as a dividend. Such dividends (including any withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you. Such dividends will not be eligible for the dividends received deduction generally allowed to corporations under the Code.
Subject to applicable limitations, dividends received by non-corporate U.S. investors from certain foreign corporations may be treated as “qualified dividend income” that is subject to reduced rates of taxation. We do not believe that any dividends that we may pay currently meet the conditions for these reduced rates.
The amount of any dividend paid in Soles will equal the U.S. dollar value of the Soles received, calculated by reference to the exchange rate in effect on the date the dividend is actually or constructively received by you, regardless of whether the Soles are converted into U.S. dollars at that time. If the Soles received as a dividend are converted into U.S. dollars on the date they are received, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the Soles received as a dividend are not converted into U.S. dollars on the date of receipt, you will have a tax basis in the Soles equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Soles will be treated as U.S. source ordinary income or loss.
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Subject to certain conditions and limitations (including a minimum holding period requirement) and the Foreign Tax Credit Regulations (as defined below), Peruvian withholding taxes on dividends may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the common shares will be treated as foreign source income and will generally constitute passive category income. However, Treasury regulations addressing foreign tax credits (the “Foreign Tax Credit Regulations”) impose additional requirements for foreign taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied. The Treasury and the Internal Revenue Service (the “IRS”) are considering proposing amendments to the Foreign Tax Credit Regulations. In addition, recent notices from the IRS provide temporary relief by allowing taxpayers that comply with applicable requirements to apply many aspects of the foreign tax credit regulations as they previously existed (before the release of the current Foreign Tax Credit Regulations) for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). Instead of claiming a U.S. foreign tax credit, you may be able to deduct Peruvian withholding taxes on dividends, subject to generally applicable limitations under U.S. law (including that a U.S. Holder is not eligible for a deduction for otherwise creditable foreign income taxes paid or accrued in a taxable year if such U.S. Holder claims a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year). The rules governing the foreign tax credit and deductions for foreign taxes are complex. You are urged to consult your tax advisors regarding the Foreign Tax Credit Regulations (and the related temporary relief in the IRS notices) and the availability of a foreign tax credit or a deduction under your particular circumstances.
Taxation of Capital Gains
For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale or other taxable disposition of common shares in an amount equal to the difference between the amount realized for the common shares and your tax basis in the common shares, in each case as determined in U.S. dollars. Such gain or loss will generally be capital gain or loss. Capital gains of non-corporate U.S. Holders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Any gain or loss recognized by you on the sale or other taxable disposition of common shares will generally be treated as U.S. source gain or loss for foreign tax credit purposes. Consequently, in the case of gain from the sale or other taxable disposition of common shares that is subject to Peruvian income tax, you may not be able to benefit from a foreign tax credit for that Peruvian income tax (i.e., because the gain from the disposition would be U.S. source), unless you can apply the credit (subject to applicable limitations) against U.S. federal income tax payable on other income from foreign sources. However, pursuant to the Foreign Tax Credit Regulations, any such Peruvian income tax would generally not be a foreign income tax eligible for a foreign tax credit (regardless of any other income that you may have that is derived from foreign sources). In such case, the non-creditable Peruvian income tax may reduce the amount realized on the sale or other taxable disposition of the common shares. As discussed above, however, recent notices from the IRS provide temporary relief by allowing taxpayers that comply with applicable requirements to apply many aspects of the foreign tax credit regulations as they previously existed (before the release of the current Foreign Tax Credit Regulations) for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). If a Peruvian income tax is imposed on the sale or other taxable disposition of the common shares and you apply such temporary relief, such Peruvian income tax may be eligible for a foreign tax credit or deduction, subject to the applicable conditions and limitations. You are urged to consult your tax advisors regarding the tax consequences if Peruvian income tax is imposed on a disposition of common shares, including the effect of the Foreign Tax Credit Regulations (and the related temporary relief in the IRS notices) and the availability of a foreign tax credit or a deduction under your particular circumstances.
Passive Foreign Investment Company.
Based on the past and projected composition of our income and assets and the valuation of our assets, we do not believe that we were a PFIC for our most recent taxable year and we do not expect to become a PFIC in the current taxable year or the foreseeable future, although there can be no assurance in this regard. In general, we will be a PFIC for U.S. federal income tax purposes for any taxable year in which, after applying certain look-through rules, (i) at least 75% of our gross income is passive income, or (ii) at least 50% of the value (generally determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our income or asset composition.
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If we are a PFIC for any taxable year during which you hold our common shares, you could be subject to additional U.S. federal income taxes on gain recognized with respect to our common shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our common shares, we would generally continue to be treated as a PFIC with respect to you for all succeeding years during which you hold the common shares, even if we ceased to meet the threshold requirements for PFIC status during such years. However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if your common shares had been sold on the last day of the last taxable year during which we were a PFIC.
You will generally be required to file IRS Form 8621 if you hold our common shares in any year in which we are classified as a PFIC. If we were to be classified as a PFIC, certain elections may be available that would result in alternative treatments (such as mark-to-market or qualified electing fund treatment) of the common shares. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances. U.S. Holders should note, however, that we do not intend to comply with such reporting requirements necessary to permit U.S. Holders to elect to treat the Company as a qualified electing fund. You are urged to consult your tax advisors concerning the U.S. federal income tax consequences of holding our common shares if we are considered a PFIC in any taxable year, including the potential availability and effect of any elections which would provide for alternative treatment.
Information with respect to Foreign Financial Assets
U.S. Holders that are individuals (and, to the extent provided in regulations, certain entities) that own “specified foreign assets,” including possibly the common shares, with an aggregate value in excess of $50,000 at the end of the taxable year or $75,000 at any time during the taxable year are generally required to file IRS Form 8938 with information regarding such assets. Depending on the circumstances, higher threshold amounts may apply. Specified foreign financial assets include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stock and securities issued by a non-U.S. person, (ii) financial instruments and contracts held for investment that have a non-U.S. issuer or counterparty, and (iii) interests in non-U.S. entities. If a U.S. Holder is subject to this information reporting regime, the failure to timely file IRS Form 8938 may subject the U.S. Holder to penalties. In addition to these requirements, U.S. Holders may be required to annually file FinCEN Report 114 (Report of Foreign Bank and Financial Accounts) with the U.S. Department of Treasury. U.S. Holders are thus encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition and ownership of the common shares.
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our common shares and the proceeds from the sale or other disposition of our common shares that are paid to you within the United States (and in certain cases, outside the United States), unless you establish that you are an exempt recipient. Backup withholding may apply to such payments if you fail to provide a taxpayer identification number and a certification that you are not subject to backup withholding, or if you fail to report in full dividend and interest income.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished to the IRS in a timely manner. Information reporting requirements may apply regardless of whether withholding is required. U.S. Holders should consult their own tax advisors about any additional reporting requirements that may arise as a result of their purchasing, holding or disposing of common shares. Significant penalties can apply if a U.S. Holder is required to disclose its common shares and fails to do so.
The above description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our common shares. You should consult your own tax advisors concerning the overall tax consequences to you, including the consequences under laws other than U.S. federal income tax laws, of an investment in our common shares.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
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H. Documents on Display
We are subject to the informational requirements of the Securities Act or the Exchange Act. Accordingly, we are required to submit reports and other information to the SEC, including annual reports on Form 20-F and reports on Form 6-K. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access these materials.
As a foreign private issuer, we are required to file with the SEC annual reports on Form 20-F, but we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act. For example, we are not required to prepare and issue quarterly reports. However, we have furnished, and intend to continue to furnish, our shareholders with quarterly reports containing unaudited financial data for the first three quarters of each fiscal year. In addition, as a foreign issuer, we are not subject to the proxy rules under Section 14 of the Exchange Act and our officers and directors are subject to Section 16 of the Exchange Act relating to insider short-swing profit disclosure and recovery regime.
We file financial statements and other periodic reports with the Peruvian Securities Commission in Peru. Issuers of securities registered with the Peruvian Securities Commission are required to disclose material information relating to the issuer. Pursuant to the Securities Market Law and relevant regulations enacted thereunder, all material information in connection with the issuer of registered securities, its activities or securities issued or secured by such issuer which may influence the liquidity or price of such securities must be disclosed. Accordingly, issuers must file with the Peruvian Securities Commission mainly two types of information: (a) financial information, including unaudited interim financial statements on a quarterly basis (which are not required to be subject to limited review), and audited annual consolidated financial statements on an annual basis, and (b) material information relating to the issuer and its activities that may significantly affect the price, offering or negotiation of the issued securities, and in general, all the information that may be relevant for investors to be able to make investment decisions.
I. Subsidiary Information
See the Notes 2.B and 6 to our audited annual consolidated financial statements included in this annual report for a description of our subsidiaries.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a number of market risks arising from our normal business activities, including the possibility that changes in currency exchange rates or interest rates will adversely affect future cash flows and profit or the value of our financial assets and liabilities. From time to time, we enter into derivative transactions to hedge against foreign currencies and interest rate fluctuations. For further information regarding our market risk, see Note 4 to our audited annual consolidated financial statements included in this annual report.
Exchange Rate Risk
We are exposed to market risk associated with changes in foreign currency exchange rates. Our revenues and costs, and our assets and liabilities, are denominated in Soles, U.S. dollars, Chilean pesos and, to a lesser extent, other currencies. In 2023, 27.0%, 54.4% and 18.6% of our revenues were denominated in Soles, U.S. dollars and other currencies (principally Chilean pesos), respectively, while 45.3%, 31.3% and 23.5% of our cost of sales during the year were denominated in Soles, U.S. dollars and other currencies. In addition, as of December 31, 2023, 50.6%, 48.3% and 1.1% of our total debt was denominated in Soles, U.S. dollars and other currencies, respectively. If, at December 31, 2023, the Sol had strengthened/weakened by 2% against the U.S. dollar, with all other variables remaining constant, or pre-tax profit for the year would have increased/decreased by US$1.9 million (US$1.2 million in 2022 and S/0.1 million in 2021).
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Interest Rate Risk
We may from time to time incur variable interest rate indebtedness, and accordingly our Financial expenses are affected by changes in interest rates. Based upon our indebtedness as of December 31, 2022, the variable interest rate indebtedness outstanding is as follows:
Linea 1 Senior Secured Notes. On February 2015, Línea 1 issued a total of S/629 million (US$184.3 million) Series A Senior Secured VAC-Indexed Notes due 2039, with an annual interest rate of 4.75% plus adjustments for inflation. As of December 31, 2022, Línea 1 had S/630.0 million (US$164.9 million) outstanding under these notes.
Bridge Loan. On March 17, 2022, the Company entered into a bridge loan agreement for up to US$ 120 million (S/ 445.6 million), with a group of financial institutions comprised by Banco BTG Pactual S.A. - Cayman Branch, Banco Santander Peru S.A., HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC, and Natixis, New York Branch. The financing is expected to be repaid over a period of 18 months, in quarterly interest installments and is secured, subject to the fulfillment of certain conditions precedent, by a flow trust (first lien), a pledge over the shares in Unna Energia S.A. (first lien), and a trust on the shares of Viva Negocio Inmobiliario S.A.C. (second lien). On October 5, 2023, and December 27, 2023, payments of US$ 8 million (equivalent to S/ 29.1 million) and US$ 12 million (equivalent to S/ 43.6 million), respectively, were made under the bridge loan agreement. In addition, on December 27, 2023, the term extension of the bridge loan agreement was signed for up to US$ 100 million for a period of twelve months payable in quarterly interest installments.
As of December 31, 2023, the loan amounts to S/ 379.9 million (as of December 31, 2022, it amounted to S/ 463.8 million), comprising principal of S/ 371.3 million, plus interest and net deferred charges of S/ 8.6 million (as of December 31, 2022, S/ 458.4 million and S/ 5.4 million, respectively).
Commodity Price Risk
We are exposed to market risk associated with changes in commodity prices, primarily for oil, steel and cement, which in aggregate represented a majority of our total input cost in 2023. We do not have long-term contracts for the supply of these key inputs. Based upon our consumption of these inputs during 2023, a 10% increase/decrease in the prices of each of oil, steel and cement would have increased/decreased our costs of sales by S/3.5 million, S/0.6 million and S/1.9 million, respectively. However, based on our production of oil during 2023, a 10% increase/decrease in the price of oil would have increased or decreased our revenues by S/44.5 million.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
On October 31, 2023, the Board of Directors approved the intention to initiate the delisting process of shares represented by ADS from the NYSE, the deregistration process of AENZA from the SEC and the termination of our ADS program. On November 16, 2023, AENZA notified the NYSE of its intention to voluntarily delist the ADSs from the NYSE. AENZA also notified the Depositary under our ADS program of the termination of the ADS program. On November 27, 2023, we filed a Form 25 with respect to the delisting of our ADSs from the NYSE. The delisting became effective on December 7, 2023, and the termination of the ADS program was effective on February 26, 2024.
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Part II.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Financial Stability Framework Agreement
In July 2017, the Company and its subsidiaries (Cumbra Peru, Construyendo País S.A., Vial y Vives - DSD and Concesionaria Vía Expresa Sur S.A.) signed a Financial Stability Framework Agreement with the following financial institutions: Scotiabank Perú S.A., Banco Internacional del Perú S.A.A., Banco BBVA Perú S.A., Banco de Crédito del Perú S.A., Citibank del Perú S.A. and Citibank N.A. The objectives of the Financial Stability Framework Agreement were: to guarantee Cumbra Peru a syndicated revolving line of credit for working capital, a non-revolving line of credit to finance repayment commitments subject to performance bonds; to guarantee lines of credit for the issuance of performance bonds and to commit to maintain the existing letters of credit issued to Cumbra Peru’s requirements.
At December 31, 2023, the Company was in compliance with the obligations and covenants established in the Financial Stability Framework Agreement.
On March 29, 2022, S/28.2 million and US$0.3 million corresponding to the total balance of the direct debt of the Financial Stability Framework Agreement (US$ 7.4 million, equivalent to S/29.5 million, as of December 31, 2021) were paid, and the line of credit for the issuance of letters of guarantee remains in place.
Santander Loan
The maturity of a short-term loan from Banco Santander to our subsidiary Cumbra Peru was extended until September 30, 2022. As of the date of this annual report, Cumbra Peru has deposited the full principal amount under the Santander Loan Agreement in the Santander Payment Account of the Guarantee and Management Trust Agreement dated March 28, 2022.
For more information, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Material Modifications to the Rights of Security Holders
None.
Use of Proceeds
In December 2018, our company issued and sold a total of 69,380,402 common shares to certain of our company’s existing shareholders that exercised preemptive rights in accordance with Peruvian law and pursuant to a private placement. On April 2, 2019, our company issued and sold 142,483,633 common shares pursuant to the private placement, of which: (i) 55,291,877 shares were paid in full and (ii) 87,191,786 shares were paid 50% on such date with 50% paid on June 1, 2019. In total, our company issued and sold 211,864,065 common shares (US$ 130 million) with the proceeds used to reduce debt, to pay our vendors and for working capital for one of our company’s subsidiaries.
On August 13, 2021, AENZA issued Convertible Bonds in a total principal amount of US$89.9 million. The Convertible Bonds matured in February 2024, beared interest at a rate of 8%, and were payable quarterly. The Convertible Bonds were convertible into shares as of the sixth month from the date of issuance. In accordance with the terms and conditions of the Convertible Bonds, holders of Convertible Bonds in a principal amount equivalent to US$11 million exercised their conversion rights and on February 28, 2022 we issued 37,801,073 new common shares. Additionally, holders of Convertible Bonds in a principal amount equivalent to US$78.9 million exercised their conversion rights and, on March 31, 2022, we issued an additional 287,261,051 new common shares. After these conversions, the Convertible Bonds were fully cancelled.
On December 27, 2023, the Company issued 174,984,912 new common shares, at a price per share of S/ 0.4971 (US$ 22.5 million), increasing the Company’s capital stock from S/ 1,196,979,979 to S/ 1,371,964,891. The total shares were fully subscribed and paid in two pre-emptive subscription rounds and in the Private Offering. US$ 20 million of the capital increase proceeds were used to repay the bridge loan. On February 15, 2024, the 174,984,912 common shares resulting from the capital increase were delivered to their holders.
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ITEM 15. CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
Management, with the participation of our company’s Chief Executive Officer and Vice President of Corporate Control and Financial Planning, performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Vice President of Corporate Control and Financial Planning, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based on this evaluation, our Chief Executive Officer and Vice President of Corporate Control and Financial Planning concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective due to the existence of the material weaknesses in internal control over financial reporting described below.
B. Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company as such term is defined by Exchange Act rules 13(a)-15(f) and 15(d)-15(f). Our Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS and 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 our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our 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.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual and interim consolidated financial statements will not be prevented or detected on a timely basis.
Management, with the participation of the Chief Executive Officer and Vice President of Corporate Control and Financial Planning under the oversight of the Audit Committee of the Board of Directors evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023, using the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2023, because of the following material weaknesses:
| ● | Our information technology general controls (ITGCs) related to our information technology (IT) systems were ineffective. Therefore, our automated process-level controls and manual controls dependent upon the accuracy and completeness of information derived from those IT systems were also ineffective because they could have been adversely impacted. |
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Management concluded that the material weaknesses were primarily due to:
| ● | With regards to our control environment, our resources did not have the necessary expertise and accountability for the design, implementation, operation, and documentation of certain internal controls over IT systems including ITGCs and automated process-level controls. |
| ● | Our risk assessment process did not identify relevant risks of material misstatement related to ITGCs. |
| ● | Our structures, reporting lines, authorities and responsibilities regarding ITGCs and their impact on process-level controls were not appropriately established. Thus, our information and communication process that identified and assessed the controls necessary to ensure the reliability of the information used in financial reporting and that communicated relevant information about roles and responsibilities for internal control over financial reporting, was not effective. |
| ● | Our assessment of the operation of internal control over financial reporting, the continued appropriateness of control design and level of supporting documentation was not effective. |
C. Report of the Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Emmerich, Córdova y Asociados S. Civil. de R.L., our independent registered public accounting firm, which audited and reported on the consolidated financial statements as of and for the year ended December 31, 2023 contained in this annual report on Form 20-F, has issued an adverse opinion on the effectiveness of our internal control over financial reporting. Emmerich, Córdova y Asociados S. Civil. de R.L.’s report appears on page F-2 of this annual report on Form 20-F.
D. Remediation Plan
The material weaknesses mentioned in Section B above, were previously identified in Management’s Annual Report on Internal Control Over Financial Reporting as of December 31, 2022. Management, with oversight of the Audit Committee of the Board of Directors, has continued implementing the action plans to remediate the material weaknesses.
Since July 2023, we have initiated an enhanced ITGC process through the deployment of a comprehensive approach targeting our ITGCs that mitigate risks. However, these ITGC enhancements are not a short-term effort, and our ITGCs have remained ineffective mainly due to incomplete evidence of the effectiveness of the control. Further improvements are expected during 2024.
In 2023, we started to undertake the following actions, however, these have not been completed and as such, we will continue to work on these actions in order to remediate the above noted material weaknesses:
| ● | Enhancing our control environment by having sufficiently trained staff, holding them accountable and having appropriate structures and reporting lines to enhance our information and communication processes. |
| ● | Deploying the remediation plan in response of the ITGC deficiencies including: (i) restructuring the IT organization with the aim of assuring trained and accountable personnel; (ii) updating the IT control matrix to align with our current IT objectives (iii) enhancing control procedures to assure proper access controls and segregation of duties across our IT systems; (iv) defining specific job functions and designated individuals with sufficient accountability and proper skills to perform oversight and report to the proper levels; (v) updating the centralized portal, which is a section in our intranet where we set out action plans (e.g. guidelines/procedures related to SOX testing) performed to manage ITGC execution; and (vi) defining action plans by IT control owners which are reviewed by our Internal Audit. |
| ● | Trainings on internal control and audit, risk management, ITGCs, and control objectives for information and related technologies framework (COBIT). |
| ● | Update of the ITGC control matrix addressing risks to material misstatements, based on IT processes, IT action plan and flowcharts aligned with IT processes which are set out in a centralized portal (Intranet). |
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E. Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Carlos Rojas as our Audit and Compliance Committee, qualifies as an “audit committee financial expert,” as defined in the instructions to Item 16A of Form 20-F. Our Board of Directors has also determined that Mr. Rojas fulfills the independence standards set forth in Rule 10A-3 of the U.S. Exchange Act.
ITEM 16B. CODE OF ETHICS
We are committed to a responsible, honest, transparent, and ethical conduct. Our management system enables us to communicate our corporate values and principles to all levels in the organization, it offers a confidential third party managed reporting mechanism (canal ético), and has a governance structure, independent from management, to investigate and remedy potential breaches of our code.
We have adopted a code of business conduct and it applies to our directors, officers, employees and any other party that represents AENZA in any activity. Our code of business conduct is available on our website www.aenza.com.pe.
If we make any substantive amendment to the code of business conduct or if we grant any waiver, including any implicit waiver, from a provision of the code of business conduct that applies to our chief executive officer, VP of Corporate Finance or Vice President of Financial Planning and Controls, we will disclose the nature of such amendment or waiver in our website or in our next Form 20-F to be filed with the SEC to the extent required under applicable rules. During the year ended December 31, 2023, no such amendment or waiver was granted.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our current independent registered public accounting firm, Emmerich, Córdova y Asociados S. Civil. de R.L., in connection with its audit of our annual consolidated financial statements for the fiscal years ended December 31, 2022 and December 31, 2023, which are included in this report.
| For the year ended December 31, | ||||||||
| 2022 | 2023 | |||||||
| (in thousands of S/) | ||||||||
| Audit fees | 5,338 | 4,935 | ||||||
| Audit-related fees | 177 | 2,558 | ||||||
| Tax fees | - | |||||||
| All other fees | - | |||||||
| Total fees | 5,515 | 7,493 | ||||||
172
Audit fees in the table above are the aggregate fees billed and billable by our independent auditor in connection with the audit of, or audit procedures in connection with, our annual consolidated financial statements and review of our internal controls. As of the date of this annual report, all fees invoiced to us by our current independent registered public accounting firm, Emmerich, Córdova y Asociados S. Civil. de R.L., in connection with its respective services rendered to us have been paid or agreed for payment.
Our Audit Committee is responsible for the oversight of the independent auditors and has established pre-approval procedures for the engagement of our registered public accounting firm for audit and non-audit services. Services can only be contracted if they are approved by the Audit Committee, they comply with the restrictions provided under applicable rules and they do not jeopardize the independence of our auditors. All services provided by our current independent auditor for our fiscal year ended December 31, 2022 and December 31, 2023 were pre-approved by our Audit Committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Our Audit and Compliance Committee is comprised by the directors Mr. Carlos Rojas Perla (chairman of the committee), Mr. Santiago Hernando Perez, Mr. Antonio Carlos Valente Da Silva and Mr. Juan Vicente Revilla Vergara.
We disclose that, with respect to the current membership of Mr. Juan Vicente Revilla Vergara on our Audit Committee, the company has relied on the exemption from the independence requirements provided by Rule 10A 3(b)(1)(iv)(D) of the Exchange Act, as amended. Pursuant to said rule, a member of the Committee who is an affiliate of the foreign private issuer or a representative of such an affiliate that has only observer status on, and is not a voting member or the chair of, the audit committee, and neither the member nor the affiliate is an executive officer of the foreign private issuer, may be exempted from the independence requirement. Mr. Juan Vicente Revilla Vergara meets the requirements of Rule 10A 3(b)(1)(iv)(D).
Our reliance on the exemption provided by Rule 10A 3 of the Exchange Act, with respect to Mr. Juan Vicente Revilla Vergara, would not materially adversely affect the ability of our Audit and Compliance Committee to act independently.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
Not applicable.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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ITEM 16K. CYBERSECURITY
Risk Management and Strategy
At AENZA, as part of our risk management portfolio, we promote the IT Security Risk Management Program to provide a framework to handle cybersecurity threats, incidents, and problems, and to facilitate coordination across different departments at AENZA and its operating businesses. This framework includes steps for assessing the severity of a cybersecurity threat, identification of the source of a cybersecurity threat, and implementation of cybersecurity countermeasures and mitigation strategies. Our IT Security Risk Management Program is regularly updated in order to be aligned with industry best practices established by internationally accepted security standards and the effectiveness of this program to mitigate the risks that AENZA is exposed to is periodically assessed by AENZA’s security team.
We have a Maturity Level Matrix that allows us to evaluate the cybersecurity levels achieved by the Company. This matrix is based on the Deloitte Cyber Strategy Framework, ISO 27001, SANS Critical Controls, and the NIST Cybersecurity Framework. As cyberattacks evolve and become more sophisticated, AENZA has strengthened its prevention and monitorization efforts. During the past few years, cybersecurity and information security actions have been reinforced with the aim to ensure an adequate protection of our information, and prevent information leaks, cyberattacks, and ransomware. The main actions taken in the past include:
| - | Implementation of perimetrical security access beside a Web Application Firewall; |
| - | Implementation of a solution filter for Web Navigation; |
| - | Improve the way of acting on cybersecurity incidents by documenting the Incident Response Plan; |
| - | Sensibilities on information assets importance by tagging critical information; |
| - | Promote IT Security Culture by continuous training and attack simulations; and |
| - | Evaluation of Security best practices adoption aligned to ISO 27000 by Prisma Cloud (Palo Alto Networks). |
Our process for identifying and evaluating cybersecurity risks is carried out in compliance with our Corporate Risk Manuals. In 2023, we focused our efforts on identifying critical information assets which allowed us to analyze and evaluate cybersecurity risks and threats associated to each of our management groups and to define solutions. We routinely review and adapt our IT Security Processes and Procedures through continuous improvement processes. An external team periodically performs security technical tests to detect and correct possible security vulnerabilities with specialized mechanisms such as ethical hacking. The outcome of such exercises is a fundamental part of a feedback process designed to improve our cybersecurity strategies.
Since 2021, we have adopted Microsoft Office 365 and Microsoft Azure user security management platform. Additionally, in April 2023, we entered into Cybersecurity Service Agreements with NeoSecure By SEK, a third-party provider with more than 20 years of experience in the field of cybersecurity, which provides a Security Operation Center (SOC). The scope of the NeoSecure’s services includes monitoring security platforms, attending security issues requirements, executing actions to prevent or fix security issues, and advising on security improvements. All the actions taken by NeoSecure are summarized in monthly reports that are sent to our security and infrastructure teams. This has allowed us to incorporate multiple layers of security that ensure a more efficient management of user identification in our infrastructure, minimizing the risk of unauthorized access and maximizing the security in our services. Additionally, starting in January 2024, all this information is delivered to the Executive Commission at the end of each quarter.
In addition, we continuously carry out training and awareness initiatives related to security and privacy. Some of the topics covered include protection of personal information, secure password management, device protection (laptops, smartphones, etc.), social engineering (phishing, smishing, vishing), malware and other technical attacks detection, detection of scams, and how to react if there is a security incident. We make available to all the employees a set of mandatory courses on the topics discussed above.
Based on the information we have as of the date of this annual report, we do not believe that cybersecurity threats have materially affected in the past three years, or are reasonably likely to materially affect, our business strategy, results of operations or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident. For more information about these risks, please see “Item 3. Key Information—D. Risk Factors—Our IT security measures may be breached or compromised, and we may sustain system outages.”
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Governance
As part of our risk management governance model, at the end of each quarter, a summary of the IT-related incidents and issues, and of the status of our IT security projects, is reported to the Executive Commission which is led by the Corporate Vice-president and supported by the Chief Information Security Officer (CISO). Our CISO was Head of Cybersecurity of Ripley Peru from March 2021 to May 2022, and IT officer of Farmacias Peruanas from May 2022 to March 2024. She holds an engineering degree from the Universidad Alas Peruanas (Peru), and Master’s degrees on cybersecurity from Universidad ESAN (Peru), Latam Business School (Mexico) and EALDE Business School (Spain). Our Board of Directors relies on our CISO to be informed about the progress of each initiative related to IT security risk governance which allows our Board of Directors to adopt technological and cybersecurity strategies. For a description of the Executive Commission, see “Item 6. Directors, Senior Management and Employees-Directors and Senior Management-Executive Commission”.
Our Board of Directors has defined the limits of the cybersecurity risk appetite for AENZA. If, upon the evaluation of the CISO, a cybersecurity risk exceeds the limits manageable in the Company, such risk must be reported to the Board of Directors in accordance with the proceedings set forth in our Cybersecurity Incidents Response Plan. These proceedings depend on the severability of the risks as described below:
| ● | Critical and high severity: The Computer Security Incident Response Team (CSIRT) Leader (i.e., the CISO) reports the cybersecurity incident or event to AENZA’s Information Technology Manager, who at its time reports the incident to AENZA’s Corporate Vice President. The CISO will determine the need to hire an external CSIRT to assist to solve the incident. |
| ● | Medium severity: The Security Operations Center (SOC) team addresses the cybersecurity incidents or events. If the incident cannot be solved by the SOC team, the SOC team must contact the CISO who will activate our Cybersecurity Incidents Response Plan. |
| ● | Low severity: The Security Operations Center (SOC) team is responsible for the low severity cybersecurity incidents or events. The SOC team is also responsible for escalating cybersecurity incidents or events if needed. |
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See our consolidated financial statements beginning at page F-1 of this annual report. See also Oil and Gas Supplementary Schedules beginning on page S-1.
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ITEM 19. EXHIBITS
The agreements and other documents filed as exhibits to this annual report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and for the benefit of the other parties to the agreements and they may not describe the actual state of affairs as of the date they were made or at any other time.
| * | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on May 15, 2018. |
| ** | Incorporated herein by reference to the Registrant’s registration statement on Form F-6 filed with the SEC on December 10, 2018. |
| *** | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on June 25, 2020. |
| **** | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on May 17, 2021. |
| ***** | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on May 16, 2022. |
| ****** | 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. |
176
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 annual report on Form 20-F on its behalf.
| AENZA S.A.A. | ||
| By: | /s/ Andre Mastrobuono | |
| Name: | Andre Mastrobuono | |
| Title: | Chief Executive Officer | |
| By: | /s/ Renzo Ricardo Temoche Romero | |
| Name: | Renzo Ricardo Temoche Romero | |
| Title: | Vice President of Corporate Control and Financial Planning | |
Date: May 13, 2024
177
Supplementary Data (Unaudited)
Oil and Gas Producing Activities
In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 932, “Extractive Activities-Oil and Gas,” and regulations of the SEC, our company has included certain supplemental disclosures about its oil and gas exploration and production operations.
All information in the following supplemental disclosures related to Blocks I, III, IV and V.
| A. | Reserve Quantity Information |
UNNA Energía S.A.’s net proved reserves in the fields in which they operate and changes in those reserves for operations are disclosed below. The net proved reserves represent our company’s best estimate of proved oil and natural gas reserves. For 2021, 2022, and 2023, reserve estimates have been evaluated by its technical staff (reservoir engineers and geoscience professionals) and submitted to its Reserve Development Committee. The estimates for all years presented conform to the definitions found in FASB ASC paragraph 932-10-65-1 and Rule 4-10(a) of Regulation S-X.
Proved oil reserves are those quantities of oil, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible, based on prices used to estimate reserves, from a given date forward from known reservoirs, and under existing economic conditions, operating methods, and government regulation prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.
The term “reasonable certainty” implies a high degree of confidence that the quantities of oil actually recovered will equal or exceed the estimate. To achieve reasonable certainty, our company’s engineers and independent petroleum consultants relied on technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used to estimate our company’s proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests.
PROVED RESERVES (Non-audited) (1)
| Total | Peru | |||||||||||||||
| Oil (MBBL) | Gas (MMcf) | Oil (MBBL) | Gas (MMcf) | |||||||||||||
| Proved developed and undeveloped reserves, December 31, 2021 | 25,298 | 55,327 | 25,298 | 55,327 | ||||||||||||
| Revisions of previous estimates(4) | 1,819 | (30,630 | ) | 1,819 | (30,630 | |||||||||||
| Enhanced oil recovery | — | — | — | — | ||||||||||||
| Purchases | — | — | — | — | ||||||||||||
| Production | (1,115 | ) | (696 | ) | (1,115 | ) | (696 | ) | ||||||||
| Sales in place | — | — | — | — | ||||||||||||
| Proved developed and undeveloped reserves, December 31, 2022 | 26,002 | 24,001 | 26,002 | 24,001 | ||||||||||||
| Revisions of previous estimates(4) | (3,126 | ) | 6,090 | (3,126 | ) | 6,090 | ) | |||||||||
| Enhanced oil recovery | — | — | — | — | ||||||||||||
| Purchases | — | — | — | — | ||||||||||||
| Production | (1,488 | ) | (1,147 | ) | (1,488 | ) | (1,147 | ) | ||||||||
| Sales in place | — | — | — | — | ||||||||||||
| Proved developed and undeveloped reserves, December 31, 2023(2)(3) | 24,365 | 28,943 | 24,365 | 28,943 | ||||||||||||
| (1) | Proved reserves estimated in oil and gas properties located in Blocks III, IV and V (Talara and Paita) under one service contracts and two license contracts with Perupetro. The rights to produce hydrocarbons terminated in October 2023 for Block V and will expire in April 2045 for Blocks III and IV. The proved reserves estimated in this report constitute all of the proved reserves under contract by UNNA Energia S.A. |
| (2) | The revisions in reserve estimates are based on new information obtained as a result of drilling activities and workovers. During 2022 and 2023, proved developed reserves of crude oil increased due to drilling activities in Block III and Block IV. |
| (3) | As of December 31, 2021, the associated gas reserves were 55,326 MMCF. As of December 31, 2022, the associated gas reserves were 24,001 MMCF. As of December 31, 2023, the associated gas reserves were 28,943 MMCF |
| (4) | Gas reserves as of December 31, 2023 were higher than gas reserves as of December 31, 2022 due to the inability to monetize gas available in Block III and considering only the volume of gas contracted from Gasnorp of 8,109 MMSCF of proved reserves. |
S-1
RESERVE QUANTITY INFORMATION (Non-audited)
FOR THE YEAR ENDED DECEMBER 31, 2021
| Total | Peru | |||||||||||||||
| Oil (MBBL) | Gas (MMCF) | Oil (MBBL) | Gas (MMCF) | |||||||||||||
| Proved developed reserves | ||||||||||||||||
| Beginning of year | 9,314 | 18,529 | 9,314 | 18,529 | ||||||||||||
| End of year | 8,647 | 8,647 | 8,647 | 15,984 | ||||||||||||
| Proved undeveloped reserves | ||||||||||||||||
| Beginning of year | 15,931 | 37,887 | 15,931 | 37,887 | ||||||||||||
| End of year | 16,651 | 39,342 | 16,651 | 39,342 | ||||||||||||
RESERVE QUANTITY INFORMATION (Non-audited)
FOR THE YEAR ENDED DECEMBER 31, 2022
| Total | Peru | |||||||||||||||
| Oil (MBBL) | Gas (MMCF) | Oil (MBBL) | Gas (MMCF) | |||||||||||||
| Proved developed reserves | ||||||||||||||||
| Beginning of year | 8,647 | 15,984 | 8,647 | 15,984 | ||||||||||||
| End of year | 10,226 | 11,345 | 10,226 | 11,345 | ||||||||||||
| Proved undeveloped reserves | ||||||||||||||||
| Beginning of year | 16,651 | 39,342 | 16,651 | 39,342 | ||||||||||||
| End of year | 15,776 | 12,656 | 15,776 | 12,656 | ||||||||||||
RESERVE QUANTITY INFORMATION (Non-audited)
FOR THE YEAR ENDED DECEMBER 31, 2023
| Total | Peru | |||||||||||||||
| Oil (MBBL) | Gas (MMCF) | Oil (MBBL) | Gas (MMCF) | |||||||||||||
| Proved developed reserves | ||||||||||||||||
| Beginning of year | 10,226 | 11,345 | 10,226 | 11,345 | ||||||||||||
| End of year | 10,402 | 15,634 | 10,402 | 15,634 | ||||||||||||
| Proved undeveloped reserves | ||||||||||||||||
| Beginning of year | 15,776 | 12,656 | 15,776 | 12,656 | ||||||||||||
| End of year | 13,963 | 13,309 | 13,963 | 13,309 | ||||||||||||
S-2
| B. | Capitalized Costs Relating to Oil and Gas Producing Activities |
The following table sets forth the capitalized costs relating to our company’s crude oil and natural gas producing activities for the years indicated:
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||
| (in US$ thousands) | ||||||||||||||||||||
| Proved properties | ||||||||||||||||||||
| Concessions | ||||||||||||||||||||
| Mineral property, wells and related equipment | 84,960 | 99,129 | 121,657 | 153,441 | ||||||||||||||||
| Drilling and Works in progress and Replacement Units | 10,767 | 11,920 | 8,138 | 23,221 | ||||||||||||||||
| Total Proved Properties | 95,727 | 111,049 | 129,795 | 176,662 | ||||||||||||||||
| Unproved properties | — | — | — | — | ||||||||||||||||
| Total Property, Plant and Equipment | 95,727 | 111,049 | 129,795 | 176,662 | ||||||||||||||||
| Accumulated depreciation, depletion, and amortization, and valuation allowances | (36,672 | ) | (45,426 | ) | (58,103 | ) | (68,451 | ) | ||||||||||||
| Net capitalized costs | 59,054 | 65,624 | 71,691 | 108,211 | ||||||||||||||||
| C. | Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities |
The following table sets forth costs incurred related to our company’s oil and natural gas activities for the years indicated:
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||
| (in US$ thousands) | ||||||||||||||||||||
| Acquisition costs of properties(1) | ||||||||||||||||||||
| Proved | — | — | — | — | ||||||||||||||||
| Unproved | — | — | — | — | ||||||||||||||||
| Total acquisition costs | ||||||||||||||||||||
| Exploration costs | — | (1,139 | ) | — | — | |||||||||||||||
| Development costs | (44,612 | ) | (13,300 | ) | (11,420 | ) | (31,496 | ) | (42,127 | ) | ||||||||||
| Total | (44,612 | ) | (14,438 | ) | (11,420 | ) | (31,496 | ) | (42,127 | ) | ||||||||||
| (1) | Our company has not incurred in any cost related to Oil and Gas property acquisition for all years presented. |
| D. | Results of Operations for Oil and Natural Gas Producing Activities |
The results of operations for oil and natural gas producing activities, excluding overhead costs and interest expenses, are as follows for the years indicated:
| Total Peru | ||||||||||||||||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||
| (in US$ thousands) | ||||||||||||||||||||
| Revenues | ||||||||||||||||||||
| Additional Revenues of Gas Extraction Services | 100,042 | 55,919 | 81,774 | 107,051 | 126,864 | |||||||||||||||
| Total Revenues(1) | 100,042 | 55,919 | 81,774 | 107,051 | 126,864 | |||||||||||||||
| Production Costs | (32,741 | ) | (26,344 | ) | (29,048 | ) | (26,861 | ) | (24,188 | ) | ||||||||||
| Costs of Labor | (2,571 | ) | (3,791 | ) | (5,180 | ) | (5,399 | ) | (4,079 | ) | ||||||||||
| Repairs and Maintenance | (3,343 | ) | (2,984 | ) | (3,560 | ) | (3,070 | ) | (2,667 | ) | ||||||||||
| Materials, supplies and fuel consumed and supplies utilized | (8,373 | ) | (6,170 | ) | (5,331 | ) | (27 | ) | (1,449 | ) | ||||||||||
| External services, insurances, security and others | (9,684 | ) | (8,427 | ) | (8,465 | ) | (9,185 | ) | (10,284 | ) | ||||||||||
| Operation office and staff expenses | (8,771 | ) | (4,971 | ) | (6,512 | ) | (9,180 | ) | (5,570 | ) | ||||||||||
| Additional Natural Gas supply costs after price adjustment Royalties | (31,508 | ) | (13,002 | ) | (26,715 | ) | (50,264 | ) | (60,146 | ) | ||||||||||
| DD&A Expenses | (19,417 | ) | (15,719 | ) | (14,353 | ) | (13,642 | ) | (30,044 | ) | ||||||||||
| Income (loss) before Income tax expenses | 16,376 | 855 | 11,657 | 16,284 | 12,486 | |||||||||||||||
| Income tax expenses(2) | (4,831 | ) | (252 | ) | (3,439 | ) | (4,804 | ) | (3,683 | ) | ||||||||||
| Results of operations from producing activities | 11,545 | 602 | 8,218 | 11,480 | 8,802 | |||||||||||||||
| (1) | Income after deductions for UNNA Energía S.A.’s share of government royalties according to contract obligations. There are no sales or transfers to our company’s other operations. |
| (2) | In 2019, the legal tax rate was 30.25%. In 2020, 2021, 2022, and 2023 the legal tax rate was 29.5%. |
S-3
| E. | Standardized Measure of Discounted Future Net Cash Flows |
The standardized measure of discounted future net cash flows, related to the proved reserves is based on estimates of net proved reserves and the period during which they are expected to be produced. Future cash inflows are computed by applying the twelve-month period unweighted arithmetic average of the price as of the first day of each month within that twelve-month period, unless prices are defined by contractual arrangements, after royalty share of estimated annual future production from proved oil and gas reserves.
Future production and development costs to be incurred in producing and further developing the proved reserves are based on year-end cost indicators. Future Income tax expenses are computed by applying year end statutory tax rates.
The following chart shows standardized measures of discounted future net cash flows for the periods indicated:
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||
| Future Cash inflows(1) | 1,836,895 | 1,181,526 | 1,803,959 | 2,484,477 | 2,069,134 | |||||||||||||||
| Future production costs | (1,311,758 | ) | (722,422 | ) | (1,063,655 | ) | (1,701,600 | ) | (1,340,092 | ) | ||||||||||
| Future development costs | (338,141 | ) | (336,998 | ) | (374,581 | ) | (353,192 | ) | (312,082 | ) | ||||||||||
| Future production and development costs(2) | (1,649,899 | ) | (1,059,419 | ) | (1,438,236 | ) | (2,054,792 | ) | (1,652,174 | ) | ||||||||||
| Future Income tax expenses(3) | (52,800 | ) | (34,192 | ) | (102,402 | ) | (120,312 | ) | (116,749 | ) | ||||||||||
| Future Net cash flows | 134,196 | 87,915 | 263,320 | 309,373 | 300,212 | |||||||||||||||
| 10% annual discount for estimates timing of cash flows | (62,683 | ) | (41,343 | ) | (140,385 | ) | (83,845 | ) | (150,359 | ) | ||||||||||
| Standardized measure of discounted Future Net Cash Flows(4) | 71,512 | 46,571 | 122,935 | 225,528 | 149,853 | |||||||||||||||
| (1) | For oil volumes, per barrel prices after deductions of UNNA Energia S.A.’s share government royalties used in determining future cash inflows for the years ended December 31, 2019, 2020, 2021, 2022, and 2023 were US$64.72, US$38.06, US$38.48, US$46.68, and US$ 40.45 respectively. For gas volumes, gas price is linked to the oil price according to the gas purchase contract. |
| (2) | Production costs and developments costs relating to future production of proved reserves are based on the continuation of existing economic conditions. Future estimated decommissioning costs are included. |
| (3) | Taxation is computed using the appropriate year-end statutory corporate income tax rates. |
| (4) | Future net cash flows from oil production are discounted at 10% regardless of assessment of the risk associated with its production activities. |
| F. | Changes in Standardized Measure of Discounted Future Net Cash Flows |
The following chart shows changes in standardized measures of discounted future net cash flows for the periods indicated:
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||
| (in US$ thousands) | ||||||||||||||||||||
| Standardized measure of discounted Future Net Cash Flows, beginning of the year | 139,514 | 71,512 | 46,571 | 122,935 | 225,528 | |||||||||||||||
| Revenue less production and other costs | (132,783 | ) | (82,263 | ) | (110,821 | ) | (133,913 | ) | (151,052 | ) | ||||||||||
| Net changes in future development costs | (53,324 | ) | (15,668 | ) | (54,441 | ) | (20,671 | ) | (5,634 | ) | ||||||||||
| Changes in price, net of production costs | (55,359 | ) | (5,137 | ) | 154,531 | 19,893 | (5,193 | ) | ||||||||||||
| Development cost incurred | 44,612 | 13,300 | (86,314 | ) | 24,107 | 42,127 | ||||||||||||||
| Revisions of previous quantity estimates | 9,882 | (14,850 | ) | (53,612 | ) | 90,931 | (20,077 | ) | ||||||||||||
| Accretion of discount | 87,508 | 58,757 | 91,413 | 88,461 | 107,289 | |||||||||||||||
| Net change in Income tax expenses | 30,250 | 10,277 | (26,809 | ) | (22,988 | ) | 14,666 | |||||||||||||
| Timing difference and other | 1,213 | 10,643 | 162,417 | 56,773 | (69,069 | ) | ||||||||||||||
| Standardized measure of discounted Future Net Cash Flows, end of the year | 71,512 | 46,571 | 122,935 | 225,528 | 149,853 | |||||||||||||||
S-4
EXHIBIT INDEX
| * | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on May 15, 2018. |
| ** | Incorporated herein by reference to the Registrant’s registration statement on Form F-6 filed with the SEC on December 10, 2018. |
| *** | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on June 25, 2020. |
| **** | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on May 17, 2021. |
| ***** | Incorporated herein by reference to the Registrant’s Form 20-F filed with the SEC on May 16, 2022. |
| ****** | 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. |
S-5
AENZA S.A.A. AND SUBSIDIARIES
Consolidated Financial Statements
AENZA S.A.A. and Subsidiaries
Consolidated Financial Statements
| Content | Page | |
| Report of Independent Registered Public Accounting Firm (Emmerich, Córdova y Asociados S. Civil de R.L.; PCAOB ID : | F-2 | |
| Consolidated Statements of Financial Position | F-5 | |
| Consolidated Statements of Profit or Loss | F-6 | |
| Consolidated Statements of Other Comprehensive Income | F-7 | |
| Consolidated Statements of Changes in Equity | F-8 | |
| Consolidated Statements of Cash Flows | F-9 – F-10 | |
| Notes to the Consolidated Financial Statements | F-11 – F-131 |
S/ = Sol
US$ = US dollar
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
AENZA S.A.A.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of AENZA S.A.A. and subsidiaries (the “Company”) as of December 31, 2022 and 2023, the related consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 13, 2024 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Valuation of the account receivable from Gasoducto Sur Peruano S.A.
As discussed in Notes 5(a)(iv), 11(b) and 14(a)(i) to the consolidated financial statements, the Company has a 21.49% investment in Gasoducto Sur Peruano S.A. (GSP), which entered into a concession agreement with the Peruvian Government in 2014. In January 2017, the Peruvian Ministry of Energy and Mines early terminated the concession agreement due to the fact that GSP did not accredit the financial closure within the contractual term. In December 2017, GSP started bankruptcy proceedings, in which the Company was part of the GSP’s creditors. In addition, in January 2024, the Liquidator was appointed and an updated Liquidation agreement of GSP was approved by the Board of Creditors after INDECOPI ordered the ex officio liquidation, in order to continue the actions permitted by law and the corresponding legal mechanisms, by which GSP believes it can recover the net carrying amount (NCA) of the concession assets from the Peruvian Government and, as a consequence, the Company expects to recover the accounts receivable. The Company had an account receivable from GSP for S/ 527.7 million, net, as of December 31, 2023.
We identified the assessment of the valuation of the account receivable from GSP as a critical audit matter. Subjective auditor judgment was required to evaluate the Company’s assessment of the recoverable amount of this account receivable due to the approval of the Liquidation agreement to be executed by the Liquidator appointed. In addition, the assessment of the discount rate used in the determination of the accounts receivable from GSP required specialized skills and knowledge. In this type of complex and long-term proceedings, the Company´s key assumptions, such as, the recoverability of the NCA of the concession assets and the term of recovery, may vary in the future.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s assessment of the recovery of this account receivable from GSP. We evaluated the Company’s and its external legal advisors’ assessment of the early termination of the concession agreement, and the corresponding conclusions that impacted the assessed recoverable amount of the account receivable. We evaluated the report from the Company’s external legal advisors with respect to the recovery process executed by the Board of Creditors. We involved legal professionals with specialized skills and knowledge, who assisted in the evaluation of the expected term of recovery used by the Company. We involved valuation professionals with specialized skills and knowledge, who assisted in the assessment of the discount rate used by the Company at December 31, 2023 by developing an independent range of discount rates and comparing those to the discount rate used by the Company and the amount recognized in the consolidated financial statements.
Revenue recognition from construction contracts with customers
As discussed in Note 2.W.i to the consolidated financial statements, the Company recognizes revenue from engineering and construction contracts with customers over time using the output method to measure the physical percentage-of-completion, which is based on surveys of performance by the Company’s experts. The Company recorded S/ 2,443.9 million of revenue from construction contracts for the year ended December 31, 2023.
We identified the evaluation of revenue recognition for engineering and construction contracts with customers as a critical audit matter. Evaluating the Company’s determination of the physical percentage-of-completion based on surveys of performance by the Company’s specialist involved a high degree of subjective auditor judgment. Specialized skills and knowledge were also required to evaluate the Company’s determination of the physical percentage of completion.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the professional qualifications and the knowledge, skills, and ability of the Company’s experts involved in measuring the contract’s physical percentage-of-completion. For a sample of construction revenue, we (i) inspected contracts signed between the Company and customers to evaluate the effects on revenue recognition of the relevant contractual conditions, (ii) analyzed the underlying documentation for the revenue recognized, (iii) interviewed and inspected documentation prepared by project personnel and (iv) involved professionals with specialized skills and knowledge in engineering, who assisted in the evaluation of the physical percentage-of-completion of the sample of construction revenue based on information provided by the Company.
/s/ Emmerich, Cordova y Asociados S. Civil de R.L.
We have served as the Company’s auditor since 2022.
Lima, Peru
May 13, 2024
F-3
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
AENZA S.A.A.:
Opinion on Internal Control Over Financial Reporting
We have audited AENZA S.A.A. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission”. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2022, and 2023, the related consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for each of the years in the “two-year” period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated May 13, 2024 expressed an unqualified opinion on those consolidated financial statements.
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 company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to information technology general controls over the Company’s information technology systems have been identified and included in management’s assessment.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. 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 audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.
/s/
May 13, 2024
F-4
AENZA S.A.A. and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2022 and 2023
| In thousands of soles | Note | 2022 | 2023 | |||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | 9 | |||||||||
| Trade accounts receivable, net | 10 | |||||||||
| Accounts receivable from related parties | 11 | |||||||||
| Other accounts receivable, net | 12 | |||||||||
| Inventories, net | 13 | |||||||||
| Prepaid expenses | ||||||||||
| Total current assets | ||||||||||
| Non-current assets | ||||||||||
| Trade accounts receivable, net | 10 | |||||||||
| Accounts receivable from related parties | 11 | |||||||||
| Prepaid expenses | ||||||||||
| Other accounts receivable, net | 12 | |||||||||
| Inventories, net | 13 | |||||||||
| Investments in associates and joint ventures | 14 | |||||||||
| Investment property, net | 15.A | |||||||||
| Property, plant and equipment, net | 15.B | |||||||||
| Intangible assets and goodwill, net | 16 | |||||||||
| Right-of-use assets, net | 15.C | |||||||||
| Deferred tax asset | 23 | |||||||||
| Total non-current assets | ||||||||||
| Total assets | ||||||||||
| Liabilities | ||||||||||
| Current liabilities | ||||||||||
| Borrowings | 17 | |||||||||
| Bonds | 18 | |||||||||
| Trade accounts payable | 19 | |||||||||
| Accounts payable to related parties | 11 | |||||||||
| Current income tax | ||||||||||
| Other accounts payable | 20 | |||||||||
| Other provisions | 21 | |||||||||
| Total current liabilities | ||||||||||
| Non-current liabilities | ||||||||||
| Borrowings | 17 | |||||||||
| Bonds | 18 | |||||||||
| Trade accounts payable | 19 | |||||||||
| Other accounts payable | 20 | |||||||||
| Accounts payable to related parties | 11 | |||||||||
| Other provisions | 21 | |||||||||
| Deferred tax liability | 23 | |||||||||
| Total non-current liabilities | ||||||||||
| Total liabilities | ||||||||||
| Equity | 22 | |||||||||
| Capital | ||||||||||
| Legal reserve | ||||||||||
| Voluntary reserve | ||||||||||
| Share Premium | ||||||||||
| Other reserves | ( | ) | ( | ) | ||||||
| Accumulated results | ( | ) | ( | ) | ||||||
| Equity attributable to owners of the Company | ||||||||||
| Non-controlling interest | 31 | |||||||||
| Total equity | ||||||||||
| Total liabilities and equity | ||||||||||
The accompanying notes are part of the consolidated financial statements.
F-5
AENZA S.A.A. and Subsidiaries
Consolidated Statements of Profit or Loss
For the years ended December 31, 2021, 2022 and 2023
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Revenue | ||||||||||||||
| Revenue from construction activities | ||||||||||||||
| Revenue from services provided | ||||||||||||||
| Revenue from real estate and sale of goods | ||||||||||||||
| Total revenue from ordinary activities arising from contracts with customers | 24 | |||||||||||||
| Cost | ||||||||||||||
| Cost of construction activities | ( | ) | ( | ) | ( | ) | ||||||||
| Cost of services provided | ( | ) | ( | ) | ( | ) | ||||||||
| Cost of real estate and sale of goods | ( | ) | ( | ) | ( | ) | ||||||||
| Cost of sales and services | 25 | ( | ) | ( | ) | ( | ) | |||||||
| Gross profit | ||||||||||||||
| Administrative expenses | 25 | ( | ) | ( | ) | ( | ) | |||||||
| Other income and expenses | 27 | ( | ) | ( | ) | |||||||||
| Operating profit (loss) | ( | ) | ||||||||||||
| Financial expenses | 26.A | ( | ) | ( | ) | ( | ) | |||||||
| Financial income | 26.A | |||||||||||||
| Interest for present value of financial asset or liability | 26.B | ( | ) | ( | ) | |||||||||
| Share of the profit or loss of associates and joint ventures accounted for using the equity method | 14 | ( | ) | |||||||||||
| (Loss) profit before income tax | ( | ) | ( | ) | ||||||||||
| Income tax expense | 28 | ( | ) | ( | ) | ( | ) | |||||||
| (Loss) profit from continuing operations | ( | ) | ( | ) | ||||||||||
| Loss from discontinued operation | 35 | ( | ) | |||||||||||
| (Loss) profit for the year | ( | ) | ( | ) | ||||||||||
| (Loss) profit attributable to: | ||||||||||||||
| Owners of the Company | ( | ) | ( | ) | ||||||||||
| Non-controlling interest | ||||||||||||||
| ( | ) | ( | ) | |||||||||||
| (Loss) profit per share attributable to owners of the Company during the year | 33 | ( | ) | ( | ) | |||||||||
| Diluted (loss) profit per share attributable to owners of the Company during the year | 33 | ( | ) | ( | ) | |||||||||
| (Loss) profit per share from continuing operations attributable to owners of the Company during the year | 33 | ( | ) | ( | ) | |||||||||
| Diluted (loss) profit per share from continuing operations attributable to owners of the Company during the year | 33 | ( | ) | ( | ) | |||||||||
The accompanying notes are part of the consolidated financial statements.
F-6
AENZA S.A.A. and Subsidiaries
Consolidated Statements of Other Comprehensive Income
For the years ended December 31, 2021, 2022 and 2023
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| (Loss) profit for the year | ( | ) | ( | ) | ||||||||||
| Other comprehensive income | ||||||||||||||
| Items that may be subsequently reclassified to profit or loss | ||||||||||||||
| Reclassification from other comprehensive income to profit and loss | ( | ) | ||||||||||||
| Foreign currency translation adjustment, net of tax | ( | ) | ( | ) | ||||||||||
| Exchange difference from net investment in a foreign operation, net of tax | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income for the year, net of tax | 29 | ( | ) | ( | ) | |||||||||
| Total comprehensive income for the year | ( | ) | ( | ) | ||||||||||
| Comprehensive income attributable to: | ||||||||||||||
| Owners of the Company | ( | ) | ( | ) | ||||||||||
| Non-controlling interest | ||||||||||||||
| ( | ) | ( | ) | |||||||||||
| Total comprehensive income for the year attributable to controlling interest in the Company | ||||||||||||||
| Continuing operations | ( | ) | ( | ) | ||||||||||
| Discontinued operations | ( | ) | ||||||||||||
| ( | ) | ( | ) | |||||||||||
The accompanying notes are part of the consolidated financial statements.
F-7
AENZA S.A.A. and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2022 and 2023
| In thousands of soles | Note | Number of shares in thousands | Capital | Legal reserve | Voluntary reserve |
Share premium |
Other reserves |
Accumulated results | Total | Non-controlling interest | Total | |||||||||||||||||||||||||||||||
| Balances as of January 1, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| (Loss) profit for the year | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Exchange difference from net investment in a foreign operation | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Comprehensive income of the year | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Transactions with shareholders: | ||||||||||||||||||||||||||||||||||||||||||
| Dividend distribution | 32 | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Acquisition of (profit distribution to) non-controlling interests, net | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Additional acquisition of non-controlling | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Deconsolidation Adexus S.A. | - | |||||||||||||||||||||||||||||||||||||||||
| Reclasification of PUT option Morelco | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Dilution of non-controlling shareholders | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Total transactions with shareholders | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balances as of January 1, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| (Loss) profit for the year | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Reclassification from other comprehensive income to profit and loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Exchange difference from net investment in a foreign operation | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Comprehensive income of the year | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Transactions with shareholders: | ||||||||||||||||||||||||||||||||||||||||||
| Dividend distribution | 32 | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Acquisition of (profit distribution to) non-controlling interests, net | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Capital increase for bond’s conversion | ||||||||||||||||||||||||||||||||||||||||||
| Dilution of non-controlling shareholders | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Total transactions with shareholders | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balances as of January 1, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Profit for the year | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||||||||||||
| Exchange difference from net investment in a foreign operation | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Comprehensive income of the year | - | |||||||||||||||||||||||||||||||||||||||||
| Transactions with shareholders: | ||||||||||||||||||||||||||||||||||||||||||
| Dividend distribution | 32 | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Acquisition of (profit distribution to) non-controlling interests, net | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Capital increase | 22.A | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Reserve reclassification | 22.B,C | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Dilution of non-controlling shareholders | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Total transactions with shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances as of December 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are part of the consolidated financial statements.
F-8
AENZA S.A.A. and Subsidiaries
Consolidated Statements of Cash Flow
For the years ended December 31, 2021, 2022 and 2023
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Operating activities | ||||||||||||||
| (Loss) profit before income tax | ( | ) | ( | ) | ||||||||||
| Adjustments to profit not affecting cash flows from operating activities: | ||||||||||||||
| Depreciation | 15 | |||||||||||||
| Amortization of intangible assets | 16.iii | |||||||||||||
| Impairment (reversal) of inventories | 13.f | ( | ) | |||||||||||
| Impairment of accounts receivable and other accounts receivable | 25(iv) y 27.C | |||||||||||||
| Reduction of trade payables | 27 | ( | ) | ( | ) | |||||||||
| Impairment of property, plant and equipment | 25 | |||||||||||||
| Impairment of intangible assets | 16 | |||||||||||||
| Reclassification from other comprehensive income to profit and loss | ( | ) | ||||||||||||
| Other provisions | 21 | |||||||||||||
| Renegotiation of liability for acquisition of non-controlling Morelco | 27.a | ( | ) | ( | ) | |||||||||
| Financial expense, net | ||||||||||||||
| Impairment of investment | 27.c | |||||||||||||
| Incremental cost of acquiring interest in joint operation | ||||||||||||||
| Insurance recovery | ( | ) | ||||||||||||
| Share of the profit and loss of associates and joint ventures accounted for using the equity method | 14 (a) and (b) | ( | ) | ( | ) | |||||||||
| Reversal of provisions | 21 | ( | ) | ( | ) | ( | ) | |||||||
| Disposal (reversal) of assets | ( | ) | ||||||||||||
| Profit on sale of property, plant and equipment | ( | ) | ( | ) | ( | ) | ||||||||
| Loss (profit) on remeasurement of accounts receivable and accounts payable, net | ( | ) | ||||||||||||
| Net variations in assets and liabilities: | ||||||||||||||
| Trade accounts receivable | ( | ) | ( | ) | ( | ) | ||||||||
| Other accounts receivable | ( | ) | ||||||||||||
| Other accounts receivable from related parties | ( | ) | ||||||||||||
| Inventories | ( | ) | ||||||||||||
| Prepaid expenses and other assets | ( | ) | ||||||||||||
| Trade accounts payable | ( | ) | ||||||||||||
| Other accounts payable | ( | ) | ( | ) | ||||||||||
| Other accounts payable to related parties | ( | ) | ( | ) | ||||||||||
| Other provisions | ( | ) | ( | ) | ( | ) | ||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ||||||||
| Payments for purchases of intangible assets - Concessions | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax paid | ( | ) | ( | ) | ( | ) | ||||||||
| Net cash provided by operating activities | ||||||||||||||
| Investing activities | ||||||||||||||
| Proceeds from sale of property, plant and equipment | ||||||||||||||
| Interest received | ||||||||||||||
| Dividends received | 14 (a) and (b) | |||||||||||||
| Acquisition of investment property | ( | ) | ( | ) | ( | ) | ||||||||
| Acquisition of intangible assets | ( | ) | ( | ) | ( | ) | ||||||||
| Loss of deconsolidation of investment | ( | ) | ||||||||||||
| Acquisition of property, plant and equipment | ( | ) | ( | ) | ( | ) | ||||||||
| Net cash applied to investing activities | ( | ) | ( | ) | ( | ) | ||||||||
F-9
AENZA S.A.A. and Subsidiaries
Consolidated Statements of Cash Flow
For the years ended December 31, 2021, 2022 and 2023
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Financing activities | ||||||||||||||
| Borrowing received | ||||||||||||||
| Bonds issued | 18.d | |||||||||||||
| Payment of borrowings received | 17.i | ( | ) | ( | ) | ( | ) | |||||||
| Payment of leases | 17.i | ( | ) | ( | ) | ( | ) | |||||||
| Payment of bonds issued | ( | ) | ( | ) | ( | ) | ||||||||
| Payment of debt transaction costs | ( | ) | ( | ) | ( | ) | ||||||||
| Dividends paid to non-controlling interest | 32 | ( | ) | ( | ) | ( | ) | |||||||
| Cash received (return of contributions) from non-controlling shareholders | ( | ) | ( | ) | ( | ) | ||||||||
| Acquisition or sale of interest in a subsidiary of non-controlling shareholders, net | 27.a | ( | ) | |||||||||||
| Capital increase | ||||||||||||||
| Net cash (applied to) provided by financing activities | ( | ) | ( | ) | ||||||||||
| (Net decrease) net increase in cash | ( | ) | ||||||||||||
| Exchange difference | ( | ) | ( | ) | ||||||||||
| Cash and cash equivalents at the beginning of the year | ||||||||||||||
| Cash and cash equivalents at the end of the year | 9 | |||||||||||||
| Non-cash transactions: | ||||||||||||||
| Capitalization of interests | ||||||||||||||
| Acquisition of right-of-use assets | ||||||||||||||
| Dividends declared to non-controlling interest | 32 | |||||||||||||
| Acquisition of assets through finance leases | ||||||||||||||
| Capitalization of convertible bonds | 22 | |||||||||||||
The accompanying notes are part of the consolidated financial statements.
F-10
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 1. | General Information |
| A. | Incorporation and Operations |
AENZA S.A.A., (hereinafter the “Company” or “AENZA”) is the parent of the AENZA Corporation that includes the Company and its subsidiaries (hereinafter, the “Corporation”) and is mainly engaged in its investments in the different companies of the Corporation. In addition, the Company provides specialized management consulting services and operational leasing of offices to the companies of the Corporation. The Company registered office is at Av. Petit Thouars No 4957, Miraflores, Lima.
The Corporation is a conglomerate of companies whose operations encompass different business such as engineering and construction, energy, infrastructure (public concession ownership and operation) and real estate business. See details of the Corporation’s operating segments in note 7.
| B. | Authorization for the Financial Statements Issuance |
The consolidated financial statements for the year ended December 31, 2023 have been prepared and issued with authorization of Management and the Board of Directors on February 29, 2024 and will be presented for consideration and approval to the General Shareholders’ Meeting that will be held within the terms established by Law. In Management’s opinion, the financial statements as of December 31, 2023, will be approved without any modifications.
The consolidated financial statements for the year ended December 31, 2022 were prepared and issued with the authorization of Management and the Board of Directors on May 15, 2023 and were approved by the General Shareholders’ Meeting on June 12, 2023.
| C. | Compliance with laws and regulations |
As a result of the investigations into the cases
known as Club de la Construccion and Lava Jato, AENZA has entered into an effective collaboration process. On September 15, 2022, the
Plea Agreement (hereinafter “the Agreement”) was entered into between the Public Prosecutor’s Office, the Attorney General’s
Office and the Company, whereby AENZA accepted they were utilized by certain former executives to commit illicit acts in a series of periods
until 2016 and committed to pay a civil penalty to the Peruvian Government of approximately S/
According to the Agreement, payment shall be made
within twelve (12) years at a legal interest rate in soles and dollars (
On December 27, 2023, the initial installment
of the Civil Compensation was paid to the Peruvian Government for S/
F-11
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| D. | NYSE Delisting and SEC Deregistration of the ADSs issued by AENZA. |
On October 31, 2023, AENZA’s Board of Directors decided to initiate the delisting process of shares, represented by American Depositary Securities (ADSs), on the New York Stock Exchange (NYSE), and the deregistration process of such instruments with the Securities and Exchange Commission of the United States of America (SEC) and the termination of the ADS Program.
In the opinion of Management and the Board of Directors, this decision will generate efficiencies for the Company, considering the low liquidity of the ADSs and the high annual costs of NYSE listing and SEC registration, and will not affect the Company’s long-term plans. AENZA’s shares will continue to be listed on the Lima Stock Exchange (BVL).
December 7, 2023 was the last trading day of the ADSs on the NYSE. AENZA will file a Form 15F with the SEC to terminate its obligations under Section 13(a) and 15(d) of the U.S. Securities Act of 1933, upon compliance with the requirements of such legislation.
| 2. | Basis of Preparation and Material Accounting Policies |
Significant accounting policies applied to prepare the consolidated financial statements are detailed below. These policies have been applied consistently to all years presented in these financial statements; unless otherwise indicated.
Going concern basis of accounting
Management maintains reasonable
expectation that the Corporation has adequate resources to continue in operation for a reasonable period of time and that the going concern
basis of accounting remains appropriate. As of December 31, 2023, AENZA’s consolidated backlog amounted to S/
As of December 31, 2023, the
Corporation’s net current assets were S/
Additionally, in March 2022,
the Corporation entered into a bridge loan credit agreement for up to US$
The appropriateness of the going concern basis of accounting has its support on the continued generation of own resources and, if necessary, borrowings from local and international sources and capital contributions from the owners of the Company. Management has the ability to take the following mitigation actions to preserve liquidity and optimize the Corporation’s cash flow:
| ■ | Reducing non-essential capital expenditures and deferring or cancelling discretionary spend; |
| ■ | Financial restructuring, including a short-term and long-term structural solutions and capital increase. |
Based on these factors, Management has a reasonable expectation that the Corporation has adequate resources for its operations.
F-12
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Material accounting policy information
The Corporation adopted the Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) from 1 January 2023. Although the amendments did not result in any changes to the accounting policies themselves, they impacted the accounting policy information disclosed in the consolidated financial statements. The amendments require the disclosure of “material”, rather than “significant”, accounting policies. The amendments also provide guidance on the application of materiality to disclosure of accounting policies, assisting entities to provide useful, entity-specific accounting policy information that users need to understand other information in the consolidated financial statements. Management reviewed the accounting policies and made updates to the information disclosed in note 2 Basis of Preparation and Material Accounting Policies (2022: Basis of Preparation and Significant Accounting Policies).
| A. | Basis of preparation |
| i. | Basis of accounting |
The consolidated financial statements of the Company and its Subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) effective as of December 31, 2023.
| ii. | Basis of measurement |
These consolidated financial statements have been prepared on the historical cost basis, according to the Corporation’s accounting records.
| iii. | Responsibility for the information |
The information contained in these financial statements is the responsibility of the Management of the Corporation that expressly states that all the principles and criteria included in the IFRSs as issued by the IASB, effective as of December 31, 2022 and 2023, have been applied.
| iv. | Functional and presentation currency |
These consolidated financial statements are presented in soles (S/), which is the Corporation’s functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated. The functional currencies of the Subsidiaries domiciled in Chile and Colombia are CLP (Chilean Pesos) and COP (Colombian Pesos), respectively.
| v. | Use of judgments and estimates |
In preparing these consolidated financial statements, Management has made judgments and estimates that affect the application of the accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively.
Judgments
Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is included in the following notes:
| ■ | Revenue recognition: identification of performance obligations and determination of revenue recognition at a point in time (note 2.W). |
| ■ | Lease term: whether the Company and its Subsidiary are reasonably certain to exercise extension options in leases (note 2.Y). |
| ■ | Estimate of current tax payable and current tax expense in relation to an uncertain tax treatment (note 2.R). |
F-13
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties as of December 31, 2022 and 2023, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities is included in the following notes:
| ■ | Measurement of expected credit losses (ECL) allowance for trade receivables and contract assets: (note 2.I); |
| ■ | Recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources (note 2.T); |
| ■ | Recognition of deferred tax assets: availability of future taxable profit against which deductible temporary differences and tax losses carried forward can be utilized in previous periods (note 2.R); |
| ■ | Allowance for inventory obsolescence (note 2.J); |
| ■ | Allowance for useful lives and residual values of property, plant, and equipment (note 2.L). |
| ■ | Impairment test of intangible assets and goodwill: key assumptions underlying recoverable amounts (note 2.M) |
Measurement of fair values
A number of the Corporation’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The Corporation has an established control framework with respect to the measurement of fair values. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Corporation assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified. The Company regularly reviews significant unobservable inputs and valuation adjustments.
When measuring the fair value of an asset or a liability, the Corporation uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
| 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 (i.e. as prices) or indirectly (i.e. derived from prices). |
| Level 3: | Measurement based on inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs, generally based on internal estimates and assumptions of the Corporation). |
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Corporation recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during the period which the change occurred.
| B. | Consolidation of financial statements |
| i. | Subsidiaries |
The Company ‘controls’ an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
Business acquisition-related costs are expensed as incurred. Balances, income, and expenses from transactions between Corporation companies are eliminated. Profits and losses resulting from inter-group transactions that are recognized as assets are also eliminated.
| ii. | Business Combinations |
The Corporation accounts for business combinations using the acquisition method when control is transferred to the Corporation. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred.
F-14
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| iii. | Non-controlling interests |
For each business combination, the Corporation shall select between measuring the non-controlling interests in the acquiree at fair value or at their proportionate share of the acquiree’s identifiable net assets at the acquisition date. Changes in the Corporation’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
| iv. | Associates |
Associates are those entities in which the Corporation has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Corporation has joint control, whereby the Corporation has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and the joint venture are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Corporation’s share of the profit or loss and other comprehension income of equity-accounted investees, until the date on which significant influence or joint control ceases.
| v. | Joint arrangements |
Under IFRS 11, investments in joint arrangements are classified as either a joint operation or as a joint venture depending upon each investor’s rights and obligations arising from the arrangement. The Corporation has assessed the nature of its joint arrangements and determined that they are joint ventures.
Joint ventures are accounted for using the equity method. Under the equity method, interest in joint ventures is initially recognized at cost and adjusted thereafter to recognize the Corporation’s share of post-acquisition profits and losses, as well as movements in other comprehensive income. When the Corporation’s share in the losses of a joint venture equals or exceeds its interest in such joint venture (including any long-term share that is substantially part of the Corporation’s net investment in the joint venture), the Corporation does not recognize additional losses, unless it has assumed obligations or made payments on behalf of the joint ventures.
Unrealized gains on transactions between the Corporation and its joint ventures are eliminated to the extent of the Corporation’s interest in such joint ventures. Unrealized losses are also eliminated, unless the transaction provides evidence of an impairment of the transferred asset. Gains arising from the application of the equity of accounting method are recognized in the consolidated statement of profit or loss and other comprehensive income.
In the Corporation, joint operations mainly relate to consortia (entities without legal personality) created for the development of construction contracts. Considering that the only objective of this type of consortium is to develop a specific project, all revenue and costs are included within revenue from construction activities and cost of construction activities, respectively.
| vi. | Changes in ownership interest in a subsidiary that do not result in a loss of control |
Transactions with non-controlling shareholders that do not result in loss of control are accounted for as equity transactions, i.e. as transactions with owners in their capacity as owners. The difference between the fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals of shares to non-controlling shareholders are also recorded in equity at the time of disposal.
| vii. | Disposal of subsidiaries |
When the Corporation loses control of a subsidiary, any interest retained in said entity is remeasured at its fair value at the date it loses control of the subsidiary, and any change in respect to the carrying amount is recognized in profit or loss. The fair value is considered the initial carrying amount for purposes of 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 Corporation had directly disposed of the related assets or liabilities. This means that the amount previously recognized in other comprehensive income could be reclassified to profit or loss for the year.
F-15
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| viii. | Transactions eliminated on consolidation |
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Corporation’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
| C. | Foreign currency translation |
| i. | Functional and presentation currency |
These consolidated financial statements are presented in soles (S/), which is the Corporation’s functional and presentation currency. All subsidiaries, joint arrangements, and associates use the Peruvian sol as their functional currency, except for foreign subsidiaries, for which the functional currency is the currency of the country in which they operate.
| ii. | Transactions and balances |
Transactions in foreign currency are translated into functional currency at the exchange rates at the dates of the transactions or the valuation date in the case of items that are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the statement of profit or loss, except when deferred in other comprehensive income. Foreign exchange gains and losses of all monetary items are included in the statement of other comprehensive income under ‘Exchange difference, net’.
Exchange differences arising from foreign currency loans granted by the Company to its subsidiaries are recognized in profit or loss both in the consolidated financial statements of the Company and in the separate financial statements of the subsidiaries. In the consolidated financial statements, such exchange differences are recognized in other comprehensive income and are reclassified to profit or loss in the event of the disposal of the subsidiary or debt repayment to the extent such loans qualify as part of the “net investment in a foreign operation.”
| iii. | Corporation companies |
The results and financial position of the Corporation entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the Corporation’s presentation currency are translated into the presentation currency as follows:
| (i) | assets and liabilities for each statement of financial position are translated at the closing rate at the date of that consolidated statement of financial position; |
| (ii) | income and expenses for each statement of profit or loss 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 at the rate prevailing on the date of the transaction); |
| (iii) | capital is translated by using the historical exchange rate for each capital contribution made; and |
| (iv) | all resulting exchange differences are recognized as separate components in other comprehensive income, under ‘Translation of net investment in foreign operations’. |
Goodwill and fair value adjustments arising from the acquisition of a foreign operation 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.
F-16
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| D. | Operating segments |
Operating segments are reported in a manner consistent with the internal reporting provided to the Corporation’s Management.
If there are changes in the internal organization in a manner that causes the identification of operating segments to change, the Corporation shall restate the comparative information for earlier periods unless the information is not available.
| E. | Public service concessions |
Concession agreements entered into between the Corporation and the Peruvian Government whereby the Corporation, acting in its capacity as concessionaire, assumes obligations for the construction and improvement of infrastructure, and which qualify as public service concessions are accounted as defined by IFRIC 12 Service Concession Arrangements. Under these arrangements, the government controls and regulates the infrastructure services provided by the Corporation and establishes to whom these services are to be provided and at what prices. The concession agreement establishes the obligation to return the infrastructure to the grantor at the end of the concession term or when there is any expiration event. This feature gives the grantor the control over the risks and rewards of the residual value of the assets at the end of the concession term. For this reason, the Corporation will not recognize infrastructure as part of its property, plant, and equipment. The consideration to be received from the Peruvian government for public infrastructure construction or improvement activities is recognized as a financial asset, intangible asset, or both, as set forth below:
| i. | It is recognized as a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset either because the government guarantees to pay specified or determinable amounts or because the government covers the shortfall between the amounts received, as concessionaire, from users of the public service and specified or determinable amounts. These financial assets are initially recognized at fair value, and, subsequently, at amortized cost (financial asset model). |
| ii. | It is recognized as an intangible asset to the extent that the agreement provides the Corporation with a contractual right to charge users for public services rendered. The resulting intangible asset measured at cost is amortized as described in note 2.M (intangible asset model). |
| iii. | It is recognized as a financial asset and an intangible asset when the Corporation is paid partly by a financial asset and partly by an intangible asset (bifurcated model). |
| F. | Financial instruments |
| i. | Recognition and initial measurement |
Trade accounts receivable are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Corporation becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade account receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not measured at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. An account receivable without a significant financing component is initially measured at the transaction price.
| ii. | Classification and subsequent measurement |
| ■ | Financial assets |
On
initial recognition, assets are classified as measured at amortized cost or Fair Vale Through Profit and Loss (“FVTPL”).
The classification depends on the purpose for which the financial assets were acquired based on the Company’s business model for
managing the financial assets and the characteristics of the contractual cash flows of the financial asset.
Management determines the classification of its financial assets at the date of initial recognition and reevaluates this classification as of the date of each consolidated financial statement closing. As of December 31, 2022 and 2023, the Company only holds financial assets at amortized cost.
F-17
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
A financial asset is measured at amortized cost if both of the following conditions are met and is not measured at FVTPL:
| - | It is held within a business model whose objective is to hold the financial assets to collect contractual cash flows; and |
| - | Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
All financial assets not classified as measured at amortized cost or fair value through other comprehensive income as described above are measured at FVTPL. This includes all derivative financial assets that are not cash flow hedge. On initial recognition, the Corporation may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at fair value through other comprehensive income as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch or recognition that would otherwise arise.
Subsequent measurement and gains and losses:
| Financial assets at FVTPL | These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
|
| Financial assets at amortized cost | These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
|
| Debt investments at FVOCI | These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. |
The Corporation classified its financial assets at amortized cost.
| ■ | Financial liabilities |
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, and are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest income and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
| iii. | Derecognition |
Financial assets
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset.
F-18
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
The Corporation enters into transactions whereby it transfers assets recognized in its consolidated statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.
Financial liabilities
The Corporation derecognizes a financial liability when its contractual obligations are discharged or canceled, or expire. The Corporation also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
| iv. | Offsetting |
Financial assets and financial liabilities are offset, and the net amount presented in the consolidated statement of financial position when, and only when, the Corporation currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
| v. | Derivative financial instruments and hedge accounting |
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivative financial instruments are measured at fair value, and changes therein are generally recognized in profit or loss. The Corporation designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Corporation documents the risk management objective and strategy for undertaking the hedge. The Corporation also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
As of December 31, 2022 and 2023, the Corporation does not hold derivative financial instruments.
| G. | Impairment |
| i. | Financial assets |
Financial instruments and contract assets
The Corporation considers a financial asset to be nonperforming when contractual payments are more than 365 days past due. However, in certain cases, the Corporation may consider a financial asset to be nonperforming when internal or external information indicates that it is unlikely that the Corporation will receive the contractual amounts due before the Company executes the guarantees received. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
IFRS 9 Financial Instruments requires that expected credit losses be recorded for all financial assets, except those carried at FVTPL, estimating them over twelve months or over the lifetime of the financial instrument (“lifetime”). Under this standard, the Company applies the general approach for trade and other accounts receivable, which requires assessing whether credit risk has significantly increased to determine whether the loss shall be estimated based on 12 months after the reporting date or during the lifetime of the asset.
Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit loss (“ECL’s”). When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Corporation considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Corporation’s historical experience and informed credit assessment, loss of the time value of money and individual analysis of the clients (considering their geographical location).
F-19
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
At each reporting date, the Corporation assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
| ■ | significant financial difficulty of the issuer or debtor; |
| ■ | a breach of contract such as a default or being more than 90 and 180 days past due; |
| ■ | it is probable that the debtor will enter bankruptcy or other financial reorganization; or |
| ■ | the disappearance of an active market for a security because of financial difficulties. |
For financial assets for which the Company has no reasonable expectation of recovering either all or a portion of the outstanding amount, the gross carrying amount of the financial asset is reduced. This is considered a (partial) derecognition of the financial asset.
The gross carrying amount of a financial asset is written off when the Corporation has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For individual customers and for corporate customers, the Corporation individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Corporation expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Corporation’s procedures for recovery of amounts due.
| ii. | Non-financial assets |
At each reporting date, the Corporation reviews the carrying amounts of its non-financial assets (other than investment property, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets with an indefinite useful life are tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or Cash Generating Unit’s (“CGU”). Goodwill arising from a business combination is allocated to CGU or group of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using an after-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
| H. | Cash and cash equivalents |
In the consolidated statements of financial position and cash flows, cash and cash equivalents include cash on hand, demand deposits with banks, other highly liquid investments with maturities of three months or less and bank overdrafts. In the consolidated statement of financial position, bank overdrafts are included in the balance of other financial liabilities as current liabilities.
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AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| I. | Trade accounts receivable |
Trade accounts receivable are amounts due from customers for goods or services sold by the Corporation. If any trade account receivable is expected to be collected within one year, it is classified as current; otherwise, it is classified as non-current.
Trade accounts receivable are initially recognized at transaction value, and subsequently, they are measured at amortized cost using the effective interest method, less any estimation for impairment, except for trade accounts receivable of less than one year that are recorded at face value which is similar to their fair values due to their short-term maturity.
It includes Management’s estimates corresponding to collection rights for services performed but not yet invoiced and/or approved by client, which have been valued using the percentage of completion method. It corresponds mainly to the Engineering and Construction segment (subsidiaries Cumbra Peru S.A. and Cumbra Ingenieria S.A.). In the Infrastructure segment, concerning concessions, it corresponds to future collections for public services, mainly represented by unconditional contractual rights to be received from the Grantor under the financial asset model (note 2.E)
| J. | Inventories |
The inventories include land, work-in-progress and finished buildings related to the real estate activity, materials used in the construction activity, and supplies traded as part of the exploration and extraction activity.
| i. | Real Estate Activity |
Land used for the execution of real estate projects is recognized at acquisition cost. Work-in-progress and finished real estate include the costs of design, materials, direct labor, borrowing costs (directly attributable to the acquisition, construction, production of the qualifying asset), other indirect costs, and general expenses related to the construction. The lands used for real estate projects with launch date in future periods are presented as non-current asset.
Net realizable value is the estimated selling price in the ordinary course of business, less applicable selling expenses. Annually, the Corporation reviews whether inventories have been impaired identifying three groups of inventories to measure their net realizable value: i) land bought for future real estate projects which are compared to their appraisal value, if the acquisition value is higher, a provision for impairment is recognized; ii) land under construction: in this case impairment is measured based on cost projections; if these costs are higher than selling prices of each real estate unit, an estimate for impairment is recorded; and iii) finished real estate units: these inventory items are compared to the selling prices less commercialization costs; if they are higher, an estimation for impairment is recorded.
For the reductions in the carrying amount of these inventories to their net realizable value, a provision is recognized for impairment of inventories with a charge to profit or loss for the year in which those reductions occur.
| ii. | Exploration and extraction activities |
Inventories are valued at the lower of production costs and net realizable value (“NRV”), on the basis of the weighted average method. The NRV represents the value at which it is estimated to realize oil, gas and its derivatives LPG and Saturated Acyclic Hydrocarbons, which is calculated on the basis of international prices less the discounts usually granted. Miscellaneous supplies, materials, and spare parts are valued at the lower of cost and replacement value, based on the average method. The cost of inventories excludes financing expenses and exchange differences. Inventories in transit are recorded at cost, using the specific identification method.
The Corporation registered a provision for materials impairment to profit and loss for the cases in which book value exceeds recoverable value.
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AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| iii. | Other activities |
Materials and supplies are recorded at the lower of cost (by the weighted average method) and their replacement cost. The cost of these items includes freight and non-refundable applicable taxes.
Impairment of these items is estimated on the basis of specific analyses performed by Management on their turnover. If it is identified that the carrying amount of inventories of materials and supplies exceeds their replacement value, the difference is charged to profit or loss in the period in which this situation is determined.
Management considers that, as of the date of the consolidated financial statements, it is not necessary to record provisions additional to those recognized in the financial statements to cover losses due to obsolescence of these inventories.
| K. | Investment properties |
Investment properties are shown at cost less their 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; otherwise, they are recognized as expenses when incurred.
Maintenance and repair expenses are recognized in profit or loss in the period when they are incurred. If the carrying amount of a property is greater than its estimated recoverable amount, it is immediately reduced to its recoverable amount.
Depreciation
is calculated under the straight-line method at a rate that is considered sufficient to absorb the cost of assets at the end of the useful
life and considering their significant components, with substantially different useful lives (each component is accounted for separately
for depreciation purposes and is depreciated over its separate useful life). The estimated useful lives of those properties range from
These investment properties have been leased under operating leases to third parties.
| L. | Property, plant, and equipment |
| i. | Recognition and measurement |
These assets are stated at historical cost less accumulated depreciation and accumulated losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of these items.
Assets under construction are capitalized as a separate component. Upon completion, the cost of these assets is transferred to their definitive category. Replacement units are assets whose depreciation begins when units are installed for use within the related asset.
| ii. | Subsequent expenditure |
Subsequent expenditures are included in the carrying amount of the asset or they are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Corporation, or are likely to extend the estimated useful life of the asset, and the cost of these assets can be measured reliably. Maintenance and repair expenses are presented in the consolidated statement of profit or loss in the period when incurred.
F-22
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| iii. | Depreciation |
| Years | |
| Buildings and premises | |
| Machinery and equipment | |
| Vehicles | |
| Furniture and fixtures | |
| Other equipment |
Depreciation of machinery and equipment, and vehicles recognized as “Major equipment” is calculated based on their hours of use. Under this method, the total number of hours that the machinery and equipment can operate is estimated and an hourly value is established.
The residual value and the useful life of an asset are reviewed and adjusted, if necessary, at year-end. Profit or loss for the sale of assets are recognized in ‘Other income and expenses’ in the statement of profit or loss. 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.
| M. | 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 in the acquiree and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over the fair value of the net identifiable assets. If the purchase consideration, the amount of any non-controlling interest in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree is lower than the fair value of the net assets of the acquired subsidiary, then the difference is recognized in the statement profit or loss.
Goodwill arising from a business combination is allocated to each cash-generating unit (CGU), or group of CGUs, that are expected to benefit from the business combination. Goodwill is monitored at the operating segment level.
Goodwill is tested for impairment at least annually or more often if there is evidence of impairment. Any impairment is recognized as an expense in ‘Other income and expenses’ and cannot be reversed later.
| ii. | Trademarks |
Separately acquired trademarks 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.
The trademark is tested for impairment at least annually or more often if there is evidence of impairment. Any impairment is recognized as an expense in ‘Other income and expenses’. The carrying amount written off due to impairment is reviewed at each reporting date to verify possible reversals of the impairment and is recognized in ‘Other income and other expenses’.
| iii. | Concession rights |
The intangible asset related to the right to charge users for the services covered by the concession (note 2.E) is initially recorded at the fair value of construction or improvement services and, prior to the beginning of amortization, an impairment test is performed; it is amortized using the straight-line method, from the date revenue from services starts using the effective period of the concession agreement.
| iv. | Contractual customer relationships |
Contractual customer relationships are assets
resulting from business combinations that were initially recognized at fair value, determined on the basis of the present value of the
expected net cash flows from such relationships, over a period of time based on the estimated customer tenure (the estimation of useful
life is based on the contract terms which fluctuates between
F-23
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| v. | Cost of well development |
Costs incurred during the development phase associated with the preparation of the wells for the extraction of hydrocarbons from the lots located in Talara, are capitalized as part of intangible assets. These costs are amortized over the useful lives of the wells (estimated in remaining periods for Lots I and V and the unit-of-production method for Lots III and IV), until the end of the term of the contracts with Perupetro. The Lot I contract expired in 2021 and Lot V contract expired in 2023.
The Corporation has established the Successful Efforts Method as its policy for the recognition and evaluation of exploration oil assets. During 2021, an exploratory well was drilled in Block IV, obtaining successful results. In 2022 and 2023, no exploratory well drilling activities were carried out.
| vi. | Software |
Software development costs that are directly attributable to the design and testing of identifiable and unique software controlled by the Corporation are recognized as intangible assets when the following criteria are met:
| ■ | it is technically feasible to complete the software so that it will be available for use; |
| ■ | Management has the intention to complete the software and use or sell it; |
| ■ | there is an ability to use or sell the software; |
| ■ | it can be demonstrated that the software is likely to generate future economic benefits; |
| ■ | the technical, financial and other resources necessary to complete the development of the software to enable its use or sale are available; and |
| ■ | expenses attributable to the software during its development can be reliably measured. |
Other development costs that do not meet these
recognition criteria are recognized in profit or loss as incurred. Development costs previously recognized as an expense are not recognized
as an asset in a subsequent period. Software development costs recognized as assets are amortized over their estimated useful lives, which
range from
| vii. | Surface rights |
It refers to the rights held by the subsidiary
Promotora Larcomar S.A. Land use rights are stated at historical cost less amortization and any accumulated impairment losses. The useful
life of the surface rights is
| N. | Trade accounts payable |
Trade accounts payable are obligations to pay for goods or services acquired from suppliers in the ordinary course of business. Accounts payable are classified as current liabilities if payment is to be made in a year or less or in the normal operating cycle of the business if it is higher; otherwise, they are presented as non-current liabilities.
Accounts payable are initially recognized at fair value, and subsequently, they are measured at amortized cost using the effective interest method, except for trade accounts payable of less than one year that are recorded at face value which is similar to their fair values due to their short-term maturity.
| O. | Financial liabilities at FVTPL |
Financial liabilities designated at initial recognition at FVTPL are designated at the initial recognition date, and only if the criteria of IFRS 9 are met. The Corporation does not maintain financial liabilities at fair value.
F-24
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| P. | Other financial liabilities |
They correspond to loans and bonds issued by the Corporation, which are initially recognized at their fair value, net of transaction costs incurred. These financial liabilities are subsequently recorded at amortized cost; any resulting difference between the funds received (net of transaction costs) and the redemption value is recognized in the statement of profit or loss during the loan term using the effective interest method.
Costs incurred to obtain these financial liabilities are recognized as transaction costs to the extent that it is probable that a part or the whole loan will be received. In this case, these charges defer until the loan is received.
| Q. | Borrowing costs |
Borrowing costs are recognized in profit or loss in the period in which they have been incurred, except for intangible assets and inventories in which the borrowing costs are capitalized.
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 (more than twelve months) to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. The Corporation suspends the capitalization of borrowing costs during the periods in which the development of activities of a qualifying asset has been suspended. The income obtained from the temporary investment of specific borrowings that have not yet been invested in qualifying assets is deducted from the borrowing costs eligible for capitalization.
| R. | Current and deferred income tax |
Income tax of the period comprise current and deferred income tax. Tax is recognized in the statement of profit or loss, except to the extent that it relates to items recognized in the statement of other comprehensive income or directly in equity. In this case, the tax is also recognized in the statement of other comprehensive income or directly in equity, respectively.
The current tax is calculated on the basis of the tax laws 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, where applicable, makes provisions on the amounts expected to be paid to the tax authorities.
A provision is recognized for those matters for which the determination of taxes is uncertain, but it is considered probable that there will be a future outflow of economic resources to a tax authority. Provisions are measured at the best estimate of the amount expected to be paid. The assessment is based on the tax judgment of professionals within the Company supported by prior experience in relation to such activities and in certain cases based on specialized independent tax advice.
Deferred income tax is recognized on temporary differences arising from tax basis of assets and liabilities, and their balances in consolidated financial statements. A deferred income tax asset is only recognized to the extent that it is probable that future taxable profits will be available, against which temporary differences can be utilized. Deferred income tax is determined using tax rates and legislation enacted as of the date of the consolidated statement of financial position that are expected to be applied when the deferred tax is realized or paid. A deferred tax asset is only recognized so far as it is probable that there would be future tax benefits against which temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred tax liability where the timing of the reversal of the temporary difference is controlled by the Corporation and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax arising from the initial recognition of goodwill is not recognized; likewise, the deferred tax is not recorded if it arises from the initial recognition of an asset or liability in a transaction that is not a business combination that does not affect the accounting or tax profit or loss at the time of the transaction.
F-25
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| S. | Employee benefits |
The Corporation recognizes a liability when the employee has rendered services in exchange for which is entitled to receive future payments and an expense when the Corporation has consumed the economic benefit from the service rendered by the employee in exchange for the benefits in question.
The Corporation determines employee benefits in accordance with current labor and legal regulations and classifies them as short-term benefits, long-term benefits, and termination benefits.
Short-term benefits are those other than severance indemnities, the payment of which is settled in the twelve months following the end of the period in which the employees have rendered their services; they correspond to current compensation (wages, salaries, and social health contributions), annual and sick leave, profit sharing and incentives and other non-monetary benefits.
Long-term benefits are those benefits to be paid more than twelve months after the end of the period in which the services have been rendered. As of December 31, 2022 and 2023, the Corporation did not grant benefits under this category.
Termination benefits are those benefits payable as a result of: (i) the entity’s decision to terminate the employee’s contract before the retirement date, and (ii) the employee’s decision to voluntarily accept the termination of the employment relationship.
| i. | Short-term benefits |
Current compensation
Current compensation consists of wages, salaries, social health contributions, legal bonuses and compensation for length of service (CTS, for its Spanish acronym). Wages, salaries and social health contributions are paid monthly based on the consideration for services rendered.
The Corporation entities recognizes the expense for legal bonuses and their related liabilities under laws and regulations currently in force in Peru, Chile, and Colombia. In Peru, legal bonuses correspond to two monthly payments which are accrued based on the consideration for the service. There are no legal bonuses in Chile; in Colombia, it is called service bonus and corresponds to a monthly remuneration per year.
Compensation for length of service (CTS) corresponds
to the employee’s indemnity rights which are accrued based on the consideration for the service rendered calculated in accordance with
the legislation in force in each country where the entities comprising the Corporation operate. They are determined as follows: (i) in
Peru, it is equivalent to half the compensation in force at the date of payment and is made through deposit in bank accounts designated
by the workers in the months of May and November of each year; (ii) in Colombia, it is equivalent to
Annual paid absences
Personnel’s annual vacations are recognized on an accrual basis. The provision for estimated liability corresponding to personnel’s annual vacations, resulting from services rendered by the employees, is recorded on the date of the statement of financial position and corresponds to: (i) one month for personnel in Peru, (ii) fifteen days for personnel in Colombia, and (iii) in the case of Chile, they are subject to the worker’s seniority and range from fifteen to thirty days.
Profit sharing and incentives
The workers’ profit sharing is determined
on the basis of the legal provisions in force in each country where the entities of the Corporation operate, as follows: (i) in Peru,
it is equivalent to
F-26
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| ii. | Termination benefits |
The Corporation entities recognize liabilities and expenses for severance indemnities when they occur, based on the legal provisions in force in each country. Under Peruvian law, compensation for arbitrary dismissal for personnel with indefinite-term contracts is 1.5 times the monthly compensation for each year worked, up to a maximum of twelve monthly compensations.
Under Colombian legislation, for the first year worked, the equivalent of 30 days of salary is granted, and from the second year on, the compensation will be the equivalent of 20 days of salary for each additional year (or the proportion); under the legislation of Chile, the employee receives a compensation of thirty days of monthly salary for each year worked with a maximum of 330 days.
| T. | Other provisions |
Provisions are recognized when the Corporation has a present obligation, either legal or constructive, as a result of past events, and when it is probable that an outflow of resources will be required to settle the obligation and it is possible to reliably estimate its amount. Provisions are reviewed at the end of each period. If the time value of money is significant, provisions are discounted using a pre-tax rate that reflects, when appropriate, specific risks of liabilities. The reversal of the discount due to the passage of time results in an increase of the obligation which is recognized with a charge to the statement of profit or loss as a finance cost.
Contingent obligations are disclosed when their existence will only be confirmed as a result of future events or when the amount cannot be measured reliably. Contingent assets are not recognized and are disclosed only if it is probable that the Corporation will generate economic benefits in the future.
Provision for the closure of oil production wells
Subsidiary Unna Energia S.A. 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 fair value and discounted to present value, following the valuation techniques established in IFRS 13 Fair Value Measurement; accordingly, 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 will be depreciated based on the useful life of the related asset. When a liability is settled, the subsidiary recognizes 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 in the carrying amount of the obligation and related asset, according to IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. Any reduction in this provision, and therefore, any reduction in the related assets which exceeds the carrying amount of the asset, will be immediately recognized in the statement of comprehensive income.
If the review of the obligation resulted in the need to increase the provision, and as a result, the carrying amount of the related asset also increases, the subsidiary takes into account whether this increase corresponds to an indication that the asset has become impaired and if so, impairment tests will be conducted (note 2.G).
| U. | Put option arrangement |
In the case of a put option contract on the equity of a subsidiary that allows the shareholder to reallocate its shares in a certain period, the amount payable under the option is initially recognized at the present value of the reimbursement under ‘Other accounts payable’, directly charged to equity. The charge to equity is recorded separately as put options subscribed on the non-controlling interest.
Subsequently, the financial liability is updated by changes in the assumptions on which the estimation of the expected cash flows is based and by the financial component due to the passage of time. The effects of this update are recognized in profit and loss.
In 2021, Cumbra Peru S.A. acquired the entire non-controlling interest of the subsidiary Morelco S.A.S. As of December 31, 2022, Cumbra Peru S.A. the liability was totally paid.
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AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| V. | Capital |
Common shares are classified as equity and are determined using the par value of the shares that have been issued.
Incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction of the received amount, net of taxes.
| W. | Revenue from contracts with customers |
Revenues from contracts with customers are recognized, for each performance obligation, either during a period of time or at a point in time, depending on which method best reflects the transfer of control of the underlying products or services to the obligation of particular performance with the customer.
The Corporation recognizes the revenue through the application of the five steps defined in the regulations: i) identifying the contract with the customer; ii) identifying performance obligations in the contract; iii) determining the transaction price; iv) allocating the transaction price to performance obligations; and v) recognizing revenue when (or as) a performance obligation is satisfied.
The following describes the Corporation’s policy of recognition for each type of revenue in line with IFRS 15:
| i. | Engineering and construction |
Revenues from engineering and construction (E&C) contracts are recognized over time as the customer simultaneously receives and consumes the benefits provided by the Corporation’s performance, the Corporation’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; and the Corporation’s performance does not create an asset with an alternative use. For these reason, the Corporation accounts for revenue over time by measuring the progress towards complete satisfaction of its performance obligations under each contract.
The Corporation applies the output method to measure the physical percentage-of-completion which is based on surveys of projects performance by the Corporation’s experts. The Corporation considers this method depicts the transfer of control of the goods or services to the customers, as it reflects also an enforceable right to payment by the Corporation for work performed to date.
The Corporation assesses whether one or more of the following factors has been satisfied: a) the contract, applicable law or other evidence provides a legal basis for the modification; b) additional costs were caused by circumstances that were unforeseen on the date of execution of the contract and not a result of deficiencies incurred by the Corporation’s performance; c) modification-related costs are identifiable and considered reasonable in view of the work performed; or d) evidence supporting the modification is objective and verifiable. When one or more of the foregoing factors is satisfied, the changes to the rights and obligations in the contract modification are considered by the Corporation to be enforceable.
The nature of some contracts, such as cost plus fee contracts, unit price contracts or similar contracts give rise to variable consideration that may include reimbursable costs, incentives and penalties. To include variable consideration related to a contract modification in the estimated transaction price, the Corporation must conclude that it is “highly probable” that a significant revenue reversal will not occur. The Corporation determines the likelihood of revenue reversal occurring (and therefore whether such price will be recovered) based on an analysis of whether any of the following factors are present: i) contractual entitlement; ii) past practice with the customer; iii) specific discussions or preliminary negotiations with the customer; or iv) verbal approval by the customer. If, as a result of such analysis, the Corporation concludes that it is “highly probable” that there will not be a significant reversal of the amount of revenue recognized, it recognizes the variable consideration relating to the contract modification. When the benefit of the contract cannot be reliably estimated, the associated revenue is recognized to the extent that the costs incurred are recoverable. Revenue is invoiced upon receipt of customer approval.
A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost to complete the contract, which is determined based on the incremental costs of fulfilling the obligation under the contract and an allocation of other costs directly related to fulfilling the contract. When it is probable that total contract costs will exceed the related revenue, the expected loss is recognized immediately.
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AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
The Corporation estimates the amount of revenue to be recognized as variable consideration using judgments and estimates to determine the most probable value, which is expected to best predict the amount of consideration to which the Corporation will be entitled.
| ii. | Real-estate |
Sale of real estate - urban and industrial lots
Revenue from real estate sale contracts is recognized when control over the property has been transferred to the client with the delivery record. Revenue is measured based on the price agreed under the contract. Until this is met, the revenue received will be counted as customer advances. These sales contracts have two performance obligations: i) the one corresponding to the transfer of the property, which includes the common areas of the building where these real estates are located, and ii) the one corresponding to the transfer of the common area outside the real estate assets but that are part of the real estate projects, which are recognized when the common area has been delivered.
Sale of urban lots
Revenue related to sales of urban lots is recognized when control over the property is transferred to the customer. Until this is met, the revenue received will be counted as customer advances. Revenue is measured based on the transaction price agreed under the contract. These sales contracts have a single performance obligation for the sale of lots, which is executed upon delivery of the sale of the assets.
Sale of industrial lots
Revenue related to sales of industrial lots is recognized when control over the property has been transferred to the customer. Until this is met, the revenue received will be counted as customer advances. These sales contracts have two performance obligations: i) transfer of the industrial lot and ii) urban authorization of the industrial lot.
| iii. | Energy |
Revenues from services rendered for oil and gas extraction, storage and dispatch of fuels and other services
Revenues from the rendering of oil and gas extraction, fuel storage and dispatch and other services rendered are recognized when the full specific service is provided, calculating the service actually provided as a portion of the total services to be provided. This type of revenue has a single performance obligation, that is performed when the service is provided at a point in time.
Revenues from sale of oil and oil byproducts
Revenue from the sale of oil and byproducts is recognized when the control of the assets is transferred to the customer, which is when the goods are delivered. In this type of revenue, there is a single performance obligation for the sale of oil and byproducts which is enforced at the delivery of the goods.
| iv. | Infrastructure |
Revenue from concession services
Revenue from concession services corresponds to operation and maintenance services and is recognized according to its nature in the period in which the service is provided. In this type of revenue, there is a single performance obligation, enforced when the service is provided.
Revenues from toll collection
Revenues generated by Red Vial 5 S.A. from toll collection through vehicle control booths are grouped in three different toll stations, located along the Ancon - Huacho - Pativilca road sections. This type of transactions are recognized at a point of time due to the control is transferred to the time of toll collection.
F-29
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| X. | Cost and expense recognition |
Engineering and construction contracts
Contract costs include all the incurred direct costs such as materials, labor, subcontracting costs, manufacturing and supply costs of equipment, start-up costs, depreciation and amortization, and indirect costs. Periodically, the Company evaluates the reasonableness of the estimates used in the determination of the total estimated contract cost of the contract. If, as a result of this evaluation, the total estimated cost of the project exceeds expected revenues, an adjustment is made in order to reflect onerous contract and the corresponding effect in profit or loss of the period in which the loss is incurred.
Cost for sale of oil and byproducts
The costs of services provided, and the costs of sales of oil and byproducts are recognized when incurred, which in this case are incurred at the same time that related revenue is recognized. Other costs and expenses are recognized as they accrue, regardless of the moment when they are paid, and are recorded in the accounting periods to which they relate.
Cost for concession operation services
The costs for operation and maintenance services are recognized when incurred, at the same time that related revenue is recognized. Other costs and expenses are recognized as they accrue, regardless of the moment when they are paid, and are recorded in the accounting periods to which they relate.
| Y. | Leases |
Lease contracts are analyzed for the purpose of identifying those containing the characteristics specified in IFRS 16 Leases for recognition, measurement, presentation and disclosure.
The Corporation evaluates in every lease contract the following:
| ■ | If it conveys the right to control the use of an identified asset; |
| ■ | If the contract term is longer that twelve months; |
| ■ | If the underlying asset amount is a material amount, and, |
| ■ | That the fees to be paid are not entirely variable. |
Leases in which the Corporation is a lessee
The Corporation recognizes a right-of-use asset and a lease liability at the lease commencement date.
The right-of-use asset is initially measured at the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. The term of the lease includes the periods covered by an option to extend the contract if the Corporation is reasonably sure to exercise that option.
The lease liability is the total unpaid installments, measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Corporation’s estimate of the amount expected to be payable under a residual value guarantee, or if the Corporation changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset.
In the engineering and construction segment, interest expenses related to leasing contracts of the core business are reported in gross margin; the rest of the Corporation segments reports them in finance expenses.
Operating cash flows will be greater since cash payments for the main portion of the lease debt are classified within the financing activities. Only the portion of the payments that reflects interest can continue to be presented as operating cash flows.
F-30
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Leases in which the Corporation is a lessor
Operating leases and assets are included in the consolidated statement of financial position according to the nature of the asset. Revenues from operating leases are recognized on a straight-line basis over the term of the lease agreement and the incentives granted to lessees are reduced from rental income. Accordingly, the Corporation, as lessor, has not changed the recognition of its leases.
| Z. | Dividend distribution |
Dividend distribution to the shareholders is recognized as a liability in the financial statements in the period in which dividends are approved.
| 3. | Standards, amendments, and interpretation of international financial reporting standards |
| A. | New amendments to IFRS mandatory as of January 1, 2023 |
| Effective date | New standards | |
| January 1, 2023 | ||
| Modifications | ||
| January 1, 2023 | ||
| B. | New IFRSs and interpretations issued after the date of presentation of the consolidated financial statements |
| Effective date | New standards or modifications | |
| January 1, 2024 | ||
| January 1, 2025 | ||
|
Effective date Deferred indefinitely |
These accounting pronouncements issued but not yet effective are not expected to have a material impact on the Corporation consolidated financial statements.
F-31
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| C. | Sustainability standards pronouncements not yet effective |
| Effective date | New standards or modifications | |
| January 1, 2024 | ||
The enactment of sustainability IFRS S1 and S2 will be applicable in Peru once the Accounting Standards Board issues a pronouncement for the application of these standards for reporting entities in the country.
| 4. | Financial Risk Management |
The Corporation’s Management is responsible for managing financial risks. The corporation Management manages the general administration of financial risks such risks include currency risk, price risk, fair-value and cash-flow interest rate risks, credit risk, the use of derivative and non-derivative financial instruments, and investment of liquidity surplus, as well as financial risks; all of which are regularly supervised and monitored.
| A. | Financial risk factors |
The Corporation’s activities expose it to a variety of financial risks: market risks (including currency risk, price risk, fair-value and cash-flow interest rate risks), credit risk, and liquidity risk.
The Corporation’s general program for risk management is mainly focused on financial market unpredictability and seeks to minimize potential adverse effects on the Corporation’s financial performance.
| (a) | Market risk |
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market prices involve four types of risk: interest rate risk, exchange rate risk, commodity price risk and other price risks. Financial instruments affected by market risk include bank deposits, trade accounts receivable, other accounts receivable, other financial liabilities, bonds, trade accounts payable, other accounts payable and accounts receivable from and payable to related parties.
| (i) | Currency risk |
Foreign exchange risk is the risk that the fair value of future cash flows of a financial instrument will be reduced by adverse fluctuations in exchange rates. Management is responsible for identifying, measuring, controlling and reporting the exposure to foreign exchange risk.
The Corporation is exposed to foreign exchange risk arising from local transactions in foreign currencies and from its foreign operations. As of December 31, 2022 and 2023, this exposure is focused mainly on fluctuations of the U.S. dollar, Chilean peso, and Colombian peso. The Corporation’s management monitors this risk by analyzing the country’s macroeconomic variables.
| As of December 31, 2022 | As of December 31, 2023 | |||||||||||||||
| Buy | Sale | Buy | Sale | |||||||||||||
| U.S. Dollars (a) | ||||||||||||||||
| Chilean Peso (b) | ||||||||||||||||
| Colombian Peso (c) | ||||||||||||||||
| (a) |
| (b) |
| (c) |
F-32
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of US dollars | 2022 | 2023 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | ||||||||
| Trade accounts receivable, net | ||||||||
| Accounts receivable from related parties | ||||||||
| Other accounts receivable | ||||||||
| Liabilities | ||||||||
| Borrowings | ( | ) | ( | ) | ||||
| Bonds | ( | ) | ( | ) | ||||
| Trade accounts payable | ( | ) | ( | ) | ||||
| Accounts payable to related parties | ( | ) | ( | ) | ||||
| Other accounts payable | ( | ) | ( | ) | ||||
| Other provisions | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
The Corporation assumes foreign exchange risk because it does not use derivative financial instruments to mitigate exchange rate fluctuations.
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Gain | ||||||||||||
| Loss | ( | ) | ( | ) | ( | ) | ||||||
| ( | ) | ( | ) | ( | ) | |||||||
| Profit (loss) before income tax | ||||||||
| Effect in thousands of soles | Strengthening | Weakening | ||||||
| For the year ended as of December 31, 2023 | ||||||||
| USD (5% movement) | ( | ) | ||||||
| USD (10% movement) | ( | ) | ||||||
| For the year ended as of December 31, 2022 | ||||||||
| USD (5% movement) | ( | ) | ||||||
| USD (10% movement) | ( | ) | ||||||
| For the year ended as of December 31, 2021 | ||||||||
| USD (5% movement) | ( | ) | ||||||
| USD (10% movement) | ( | ) | ||||||
F-33
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
The consolidated statement of changes in equity
includes foreign currency translation adjustments originated by its subsidiaries.
| 2022 | 2023 | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
| Chilean Pesos | ||||||||||||||||
| Colombian Pesos | ||||||||||||||||
The Corporation’s foreign currency translation
adjustment in 2023 was positive by S/
| (ii) | Price risk |
The Corporation is exposed to the risk of hydrocarbon price fluctuations which impacts on the selling price of the products that it commercializes, which are significantly affected by changes in global economic conditions, resource availability, and the cycles of related industries. Management considers reasonable these possible fluctuations in the hydrocarbons prices, based in the Corporation´s economic market environment.
| Profit (loss) before income tax | ||||||||
| Effect in thousands of soles | Strengthening | Weakening | ||||||
| For the year ended as of December 31, 2023 | ||||||||
| (5% movement) | ( | ) | ||||||
| (10% movement) | ( | ) | ||||||
| For the year ended as of December 31, 2022 | ||||||||
| (5% movement) | ( | ) | ||||||
| (10% movement) | ( | ) | ||||||
| (iii) | Fair-value and cash-flow interest rate risk |
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates.
The Corporation’s interest rate risk arises mainly from its long-term financial liabilities. Variable rate long-term financial liabilities expose the Corporation to cash-flow interest rate risk. Fixed-rate financial liabilities expose the Corporation to fair-value interest rate risk.
The Corporation assumes the interest rate risk, due to they do not use financial derivative instruments for mitigate variations in the interest rate risk.
The sensitivity to a reasonably possible change
in interest rates is shown below. With all other variables held constant, the Corporation’s income before income taxes would be affected
by the impact on variable rate borrowings. For the period ended December 31, 2023, the impact on income before income taxes on a
F-34
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (b) | Credit risks |
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or commercial contract, resulting in a financial loss.
Credit risk for the Corporation arises from its operating activities due to credit exposure to customers and from its financial activities, including deposits with banks and financial institutions, foreign exchange transactions, and other financial instruments. The maximum exposure to credit risk for the consolidated financial statements as of December 31, 2022 and 2023 is represented by the sum of cash and cash equivalents (note 9), trade accounts receivable (note 10), other accounts receivable (note 12) and accounts receivable from related parties (note 11).
Customer credit risk is managed by Management subject to the Corporation’s established policies, procedures and control related to customer credit risk management. The credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined based on this assessment. The maximum credit risk exposure at the reporting date is the carrying value of each class of financial assets disclosed in note 10.
The Corporation assesses the concentration of
risk with respect to trade accounts receivable as low risk because sales are not concentrated in small customer groups and no customers
account for
Management monitors the credit risk of other receivables on an ongoing basis and assesses those receivables that show evidence of impairment to determine the required allowance for doubtful accounts.
Concerning loans to related parties, the Corporation 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 of Directors (note 11).
Management does not expect the Corporation to incur any losses from the performance of these counterparties, except for the ones already recorded in the consolidated financial statements.
| (c) | Liquidity risk |
Prudent liquidity risk management implies holding enough cash and cash equivalent, and financing available through a proper number of credit sources, and the ability to close positions in the market. Historically, the Corporation’s cash flows from operations have enabled it to meet its obligations including its financing activities. The Corporation has implemented various actions to reduce its exposure to liquidity risk and has developed a Financial Plan based on several steps, which were designed with a commitment to compliance within a reasonable period of time. The Financial Plan is intended to meet the various obligations at the Company and Corporation entities levels.
The Corporate Finance Office monitors the cash flow projections made on liquidity requirements of the Corporation to ensure it exists sufficient cash to meet operational needs so that the Corporation 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 Corporation’s debt financing plans, covenant compliance, compliance with ratio targets in the statement of financial position and, if applicable, with external regulatory or legal requirements.
As of December 31, 2023, the Company has significant current payment obligations mainly arising from the Collaboration and Benefits Agreement (note 1.C) and the Bridge Loan (note 17.a). For this purpose, Management is developing a financial plan with the aim of covering the short-term part of these obligations.
Cash surplus on the amounts required for the administration of working capital are invested in checking accounts that generate interest and time deposits, selecting instruments with appropriate maturities or sufficient liquidity.
F-35
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
The table below analyzes the Corporation’s
financial liabilities grouped according to the remaining period from the date of the statement of financial position to the date of maturity.
| Contractual cash flows | ||||||||||||||||||||||||
| Carrying | Less than | 1-2 | 2-5 | More than | ||||||||||||||||||||
| In thousands of soles | amount | 1 year | years | years | 5 years | Total | ||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||
| Other financial liabilities (except for finance leases and lease liability for right-of-use asset) | ||||||||||||||||||||||||
| Finance leases | ||||||||||||||||||||||||
| Lease liability for right-of-use asset | ||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||
| Trade accounts payables (except non-financial liabilities) | ||||||||||||||||||||||||
| Accounts payables to related parties | ||||||||||||||||||||||||
| Other accounts payables and other provisions (except non-financial liabilities) | ||||||||||||||||||||||||
| Contractual cash flows | ||||||||||||||||||||||||
| Carrying | Less than | 1-2 | 2-5 | More than | ||||||||||||||||||||
| In thousands of soles | amount | 1 year | years | years | 5 years | Total | ||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||
| Other financial liabilities (except liability for right-of-use asset) | ||||||||||||||||||||||||
| Lease liability for right-of-use asset | ||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||
| Trade accounts payables (except non-financial liabilities) | ||||||||||||||||||||||||
| Accounts payables to related parties | ||||||||||||||||||||||||
| Other accounts payables and other provisions (except non-financial liabilities) | ||||||||||||||||||||||||
| B. | Capital management |
The Corporation’s objective in managing capital is to safeguard its ability to continue as going concern in order to generate returns to its shareholders, benefits to stakeholders, and keep an optimal capital structure to reduce capital cost. Since 2017, due to the situation of the Corporation, Management has monitored deviations that might cause the non-compliance of covenants and may hinder renegotiation of liabilities. In special situations and events, the Corporation identifies potential deviations, requirements and establishes a plan.
The Corporation may adjust the amount of dividends payable to shareholders, return capital to shareholders, issue new shares or sell assets to reduce its debt to maintain or adjust the capital structure.
The Corporation monitors its capital based on the leverage ratio. This ratio is calculated as net debt divided by the sum of net debt plus equity. The net debt corresponds to the total financial liabilities (including current and non-current indebtedness) adding the provision for civil compensation less cash and cash equivalents.
F-36
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | Note | 2022 | 2023 | |||||||
| Total borrowing, bonds and civil compensation (*) | 17 and 18 | |||||||||
| Less: Cash and cash equivalents | 9 | ( | ) | ( | ) | |||||
| Net debt (a) | ||||||||||
| Total equity (b) | ||||||||||
| Total net debt plus equity (a) + (b) | ||||||||||
| Gearing ratio | ||||||||||
| (*) |
During the years ended December 31, 2022 and 2023, there were no changes in the objectives, policies or processes related to capital management.
| 5. | Use of Judgments and Estimates |
The estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including the reasonable expectation of occurrence of future events depending on the circumstances.
| A. | Significant accounting estimates and criteria |
The Corporation makes estimates and assumptions regarding the future. Resulting accounting estimates very rarely will be the same as the actual results. The following are the estimates and assumptions that have significant risk as to produce a material adjustment to the balances of assets and liabilities for next periods.
| i. | Impairment testing of goodwill and other finite useful-life fixed assets and indefinite useful-life intangible assets |
Impairment testing is undertaken annually to determine if goodwill arising from business acquisitions and other useful-life indefinite intangible assets are impaired, in accordance with the policy described in note 2.G. For this purpose, goodwill is allocated to the different CGUs to which it relates while other indefinite useful-life intangible assets are assessed individually.
The recoverable amounts of the CGU and of other indefinite useful-life intangible assets have been determined based on the higher of their value-in-use or fair value less costs to sell. This testing requires the exercise of Management’s professional judgment to analyze any potential indicators of impairment such 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 Corporation 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 that the factors reducing the fair value of the business units 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 indefinite useful-life intangible assets may be deemed to be impaired, which could result in write-off being necessary.
As a result of these evaluations, as of December
31, 2022 and 2023, no provision for goodwill impairment was identified (note 16.iii). As of December 31, 2022, the Corporation recognized
impairment of the Vial y Vives-DSD brands for S/
As of December 31, 2022 and 2023, the Corporation
conducted a sensitivity analysis increasing or decreasing the assumptions of gross margin, discount rate, and revenue and terminal growth
rate by
F-37
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Goodwill
In 2023, if the gross margin, discount rate, and
perpetual growth rate were
In 2022, if the gross margin, discount and perpetual
rate were
Trademarks
In 2023, if the revenue growth rate, discount
rate and perpetual growth rate were
In 2022, if the revenue growth rate, discount
rate and perpetual growth rate were
| ii. | Taxation |
Determination of the tax obligations and expenses requires interpretations of the applicable tax legislation. The Corporation has professional advice on legal tax matters before making any decision on tax matters.
Deferred
Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which temporary differences and tax losses can be used. For this purpose, the Corporation takes into consideration all available information, 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 the benefit will be realized.
The income tax for the year includes Management’s
evaluation of the amount of taxes to be paid in uncertain tax positions, where the liabilities have not yet been agreed with the tax administration.
The Corporation’s possible maximum exposure to tax contingency amounts to S/
| iii. | Percentage of completion revenue recognition |
Revenue from services based on construction contracts are recognized by the percentage of completion method, according to the output method (note 2.W.i). The Corporation needs to estimate the cost to be obtained upon completion of the work. Projections of these costs are determined by Management based on their execution budgets and adjusted periodically in order to use updated information to reflect actual performance in the work. In this regard, Management believes that the estimates made at the end of the year are reasonable.
F-38
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Contract revenues are recognized as such in the consolidated statement of comprehensive income and the costs related to the construction contract are recognized as costs of construction in the consolidated statement of comprehensive income in the accounting periods in which the project was executed. Costs directly related to a specific contract include: labor costs at the construction site (including construction supervision), costs of materials used in construction, depreciation costs of equipment used in the contract, design and technical assistance costs directly related to the contract, among others (note 2.X). However, any expected and likely cost overruns related to the contract over total expected income under the contract is recognized as expense immediately. In addition, any change in the estimates under the contract is recognized as a change in accounting estimates in the period in which the change is made and future periods, if applicable. In certain construction contracts, the terms of these agreements allow to retain an amount to customers until construction is completed.
| 2021 | 2022 | 2023 | ||||||||||
| Revenue | ||||||||||||
| Gross profit | ( | ) | ||||||||||
| % | ||||||||||||
| Plus 10% | ||||||||||||
| Increase in profit (loss) before income tax | ( | ) | ||||||||||
| ( | ) | |||||||||||
| Less 10% | ||||||||||||
| Decrease in (loss) profit before income tax | ( | ) | ( | ) | ||||||||
| ( | ) | |||||||||||
| iv. | Provision for decommissioning and well closure |
The provision for decommissioning and well closure is an obligation established by law for all operators. Accordingly, it is more likely than not that an outflow of resources will be required to settle the obligation and it is possible to reliably estimate its amount. The operator is responsible for this activity to the extent that the wells have been worked during the contract period.
As of December 31, 2022 and 2023, the estimate of the amount calculated by the Corporation is based on the following factors:
| - | Total number of wells to be plugged, |
| - | Well decommissioning and plugging costs (these costs are estimated on the basis of plug and abandonment performed in previous periods and with quotations made for the Lot I and Lot V abandonment plan), and |
| - | Costs for facility abandonment and remediation areas |
The Corporation estimates the present value of
its future obligation for decommissioning and well closure costs (well closure liability) and increases the carrying amount of the asset
to be retired in the future, which is shown in intangible assets item in the consolidated statement of financial position. The provision
is recognized at the present value of the expected disbursements in local and foreign currency to settle the obligation using the Peruvian
sovereign bond discount rate in local and foreign currency, respectively for
F-39
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 2022 | 2023 | |||||||||||||||
| Discount rates | USD | PEN | USD | PEN | ||||||||||||
| Lot I | % | % | % | % | ||||||||||||
| Lot V | % | % | % | % | ||||||||||||
| Lot III | % | % | % | % | ||||||||||||
| Lot IV | % | % | % | % | ||||||||||||
The liability for the closure of wells and other oil premises is readjusted to reflect changes arising from the passage of time and from reviews conducted either at the date of occurrence or the amount of the present value of the originally estimated obligations (note 21).
| In thousands of soles | 2022 | 2023 | ||||||
| 10% | ( | ) | ||||||
| (10%) | ||||||||
| v. | Impairment of investment in associate and account receivable to Gasoducto Sur Peruano S.A. |
As a consequence of the termination of the concession agreement signed between Gasoducto Sur Peruano S.A. (hereinafter “GSP”) and the Peruvian State (note 14.a.i), in 2019 the Company impaired the full value of its investment in GSP.
Regarding trade accounts receivable, to GSP (note 11 and note 14), the Management has determined its recoverability under the following assumptions: (i) the amount that GSP will recover as a result of a possible public auction y (ii) the liquidation of the company via the GSP Creditor´s meeting.
Accounts receivable related to GSP as of December
31, 2022 and 2023 amount to S/
The calculation of the impairment estimate adheres to a process of liquidation of GSP in accordance with Peruvian legislation, according to which the value of the asset to be recovered is used first to cover the payments of liabilities in the different categories of creditors and the remainder, if it is the case, to cover the payment to the shareholders, taking into account the existing subordination agreements.
In 2018, in relation to the amount to be recovered
by GSP, the Company assumed a recovery of the minimum amount established in the Concession Agreement, which is equivalent to
Beginning 2019, the recovery of NBV estimated
by Management equals
As of the date of this report, GSP is under liquidation.
AENZA S.A.A. has pointed as chairman of the Creditors’ Meeting. On December 28, 2023, the Instituto Nacional de Defensa de la Competencia
y de la Proteccion de la Propiedad Intelectual INDECOPI ordered the ex officio liquidation of GSP and the Technical Secretariat of the
Commission called a Sole Meeting of Creditors for January 29, 2024, with the sole purpose of appointing a Liquidator for the process and
approving a new Liquidation Agreement. The Sole Meeting was formed by the Creditors in attendance and approved the corresponding proposals
by simple majority. Thus, on the aforementioned day, with
F-40
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
The Company considers that the term of
| B. | Significant judgments in applying accounting policies |
Consolidation of entities in which the Corporation
holds less than
Consolidation of entities in which the Corporation does not have joint control but holds rights and obligations over the assets and liabilities
The Corporation assesses, on an ongoing basis, the nature of the contracts signed with one or more parties. If the Corporation is not determined to have control or joint control but has rights to the assets and obligations for the liabilities under the arrangement, the Corporation recognizes its assets, liabilities, income and expenses and its interest in any jointly controlled assets or liabilities and any income or expenses arising from the arrangement as a joint operation in accordance with IFRS 11 – Joint Arrangements (note 2.B.v).
| 6. | Interests in Other Entities |
The consolidated financial statements include the accounts of the Company and its subsidiaries. Additionally, the consolidated financial statements include interests in joint operations in which the Company or certain subsidiaries have joint control with their partners (note 2.B).
| A. | Main subsidiaries |
The following table shows the main direct and indirect subsidiaries classified by operating segment (note 7):
| Name | Country | Economic activity | ||
| Engineering and Construction: | ||||
| Cumbra Peru S.A. | Peru, Chile, and Colombia | Service of civil construction, electromechanical assembly, and building, management and implementation of real estate projects, and other related services. | ||
| GyM Chile S.p.A. | Chile | Investment funds, investment companies, and similar financial entities. | ||
| Vial y Vives – DSD S.A. (VyV) | Chile | Construction engineering projects, civil construction, and related technical advisory, rental of agriculture and livestock, forest, construction and civil engineering machinery and equipment without operators. | ||
| Morelco S.A.S. | Colombia, Ecuador, and Peru | Provision of construction and assembly services, supply of equipment and materials, operation and maintenance, and engineering services in the specialties of mechanics, instrumentation, and civil works. | ||
| Cumbra Ingenieria S.A. | Peru, Mexico, and Chile | Engineering advisory and consultancy, project execution, and project studies and supervision, and work management. |
F-41
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Name | Country | Economic activity | ||
| Energy: | ||||
| Unna Energia S.A. | Peru | Oil and natural gas products and byproducts extraction, operation and exploitation services, as well as fuel storage and dispatch services. | ||
| Oiltanking Andina Services S.A. (OTAS) | Peru | Operation of the gas processing plant of Pisco – Camisea. | ||
| Transportadora de Gas Natural Comprimido Andino S.A.C. (TGNCA) | Peru | Development of natural gas activities and the supply, transport and trading of natural gas. | ||
| Infrastructure: | ||||
| Unna Transporte S.A.C. | Peru | Operation and maintenance of highways and concessions. | ||
| Tren Urbano de Lima S.A. (TULSA) | Peru | Concession to operate the metro transportation system of Lima Metropolitana. | ||
| Carretera Andina del Sur S.A. | Peru | Concession to construct, operate, and maintain Section 1 of “Interoceanica Sur” highway. | ||
| Red Vial 5 S.A. | Peru | Concession to restore, operate, and maintain the “Ancon – Huacho – Pativilca” Section of “Panamericana Norte” Highway. | ||
| Carretera Sierra Piura S.A.C. | Peru | Concession to operate and maintain the Buenos Aires – Canchaque provincial highway. | ||
| Concesionaria Via Expresa Sur S.A. | Peru | Concession to design, construct, operate, and maintain Via Expresa – Paseo de la Republica in Lima. | ||
| Real estate: | ||||
| Viva Negocio Inmobiliario S.A.C. (VIVA) | Peru | Development and management of real estate projects directly or jointly to other partners. | ||
| Parent company and other entities: | ||||
| CAM Holding S.p.A. | Chile | Investment company. | ||
| Aenza Servicios Corporativos S.A.C. (before Qualys S.A.C.) | Peru | Provision of human, economic and technological services to the Corporation’s companies. | ||
| Promotores Asociados de Inmobiliarias S.A. | Peru | It operates in the real estate industry and is engaged in development and sale of offices. | ||
| Negocios del Gas S.A. | Peru | Investment company for construction, operation, and maintenance of natural gas and natural gas liquids transportation systems. | ||
| Inversiones en Autopistas S.A. | Peru | Company holding shares, interests, or other any ownership or credit investment. | ||
| Operadores de Infraestructura S.A.C. | Peru | Activities related to the leasing of advertising space and commercial premises on Line 1 of the Lima Metro. |
F-42
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 2022 | 2023 | |||||||||||||||||||||||
| In percentage | Percentage of common shares directly held by Parent (%) | Percentage of common shares held by Subsidiaries (%) | Percentage of common shares held by non-controlling interests (%) | Percentage of common shares directly held by Parent (%) | Percentage of common shares held by Subsidiaries (%) | Percentage of common shares held by non-controlling interests (%) | ||||||||||||||||||
| Engineering and Construction: | ||||||||||||||||||||||||
| Cumbra Peru S.A. | % | % | % | % | ||||||||||||||||||||
| - Morelco S.A.S. | % | % | ||||||||||||||||||||||
| - GyM Chile S.p.A. | % | % | ||||||||||||||||||||||
| - Vial y Vives - DSD S.A. | % | % | % | % | ||||||||||||||||||||
| - Cumbra Inversiones Colombia S.A.S. | % | % | ||||||||||||||||||||||
| Cumbra Ingenieria S.A. | % | % | % | % | ||||||||||||||||||||
| - Ecologia Tecnologia Ambiental S.A.C. | % | % | ||||||||||||||||||||||
| - GM Ingenieria y Construccion de CV | % | % | ||||||||||||||||||||||
| - Cumbra Ingenieria Chile S.p.A. | % | |||||||||||||||||||||||
| - GM Ingenieria Bolivia S.R.L. | % | % | ||||||||||||||||||||||
| Energy: | ||||||||||||||||||||||||
| Unna Energia S.A. | % | % | % | % | ||||||||||||||||||||
| - Oiltanking Andina Services S.A. | % | % | % | % | ||||||||||||||||||||
| - Transportadora de Gas Natural Comprimido Andino S.A.C. | % | % | ||||||||||||||||||||||
| Infrastructure: | ||||||||||||||||||||||||
| Unna Transporte S.A.C. | % | % | ||||||||||||||||||||||
| Tren Urbano de Lima S.A. | % | % | % | % | ||||||||||||||||||||
| Carretera Andina del Sur S.A.C | % | % | ||||||||||||||||||||||
| Red Vial 5 S.A. | % | % | % | % | % | % | ||||||||||||||||||
| Carretera Sierra Piura S.A.C. | % | % | % | % | ||||||||||||||||||||
| Concesionaria Via Expresa Sur S.A. | % | % | % | % | ||||||||||||||||||||
| Real Estate: | ||||||||||||||||||||||||
| Viva Negocio Inmobiliario S.A.C. | % | % | % | % | ||||||||||||||||||||
| Parent company and other entities: | ||||||||||||||||||||||||
| AENZA Servicios Corporativos S.A.C. | % | % | ||||||||||||||||||||||
| Promotora Larcomar S.A. | % | % | % | % | ||||||||||||||||||||
| Negocios del Gas S.A. | % | % | % | % | ||||||||||||||||||||
| Agenera S.A. | % | % | % | % | ||||||||||||||||||||
| Inversiones en Autopistas S.A. | % | % | % | % | ||||||||||||||||||||
| Cam Holding S.p.A. | % | % | ||||||||||||||||||||||
F-43
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| B. | Public service concessions |
The Corporation has public service concessions. When applicable, the income attributable to the construction or restoration of infrastructure has been accounted for by applying the models described in note 2.E (financial asset model and intangible assets).
In all Corporation’s concessions, the infrastructure returns to the Grantor at the end of the Agreement.
| Name of Concessionaire | Description | Estimated investment | Consideration | Interest | Concession termination | Accounting model | ||||||||
| Carretera Andina del Sur S.A. | % | |||||||||||||
| Carretera Sierra Piura S.A.C. | % | |||||||||||||
| Concesionaria La Chira S.A. | % | |||||||||||||
F-44
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Tren Urbano de Lima S.A. | % | |||||||||||||
| Red Vial 5 S.A. | % | |||||||||||||
| Concesionaria Via Expresa Sur S.A. | - | % |
F-45
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| C. | Hydrocarbon and gas contracts |
As of December 31, 2023, the subsidiary Unna Energia S.A. has mainly two contracts signed with Perupetro S.A. (in 2022, it had three contracts), as indicated below:
| i. | License agreement for the exploitation of hydrocarbons (Lot III) |
Subscribed with Perupetro S.A. in March 2015 for a period of thirty years for oil, and forty years for non-associated natural gas counted from April 5, 2015, the date corresponding to the start of operations. The lot is located in the provinces of Talara and Paita, Grau region, northeastern Peru. As of December 31, 2023, the Company held a total of 514 wells of which 137 wells were active and 377 wells were inactive (as of December 31, 2022 it held 505 wells of which 172 wells were active and 333 wells were inactive).
| ii. | License agreement for the exploitation of hydrocarbons (Lot IV) |
Subscribed with Perupetro S.A. in March 2015 for a period of thirty years for oil, and forty years for non-associated natural gas counted from April 5, 2015, the date corresponding to the start of operations. The lot is located in the provinces of Talara and Contralmirante Villar, department of Piura and Tumbes, Grau region, northeastern Peru. As of December 31, 2023, the Company had a total of 594 wells of which 377 wells were active and 217 wells were inactive (as of December 31, 2022 it had 578 wells of which 361 wells were active and 217 wells were inactive).
| iii. | Service contract for exploration and exploitation of hydrocarbons (Lot I) |
Contract terminated on December 26, 2021, signed in 1991 by Cavelcas del Peru S.A. (CAVELCAS) and Perupetro S.A. for a period of twenty years. On July 31, 1995 CAVELCAS made the assignment of the contractual position for 100% of the participation to the Company, the latter assuming the technical, economic and financial responsibility of the operations. In March 2010 an extension agreement was signed for this contract until December 2021. To date, the Company is in the process of obtaining the approval of the Abandonment Plan, in order to execute the activities under its responsibility due to the termination of the Contract.
| iv. | Service contract for exploration and exploitation of hydrocarbons (Lot V) |
This contract was signed with Perupetro S.A. in 1993 for a period of twenty years. In March 2010 the Extension Agreement to the oil services contract was signed until October 7, 2023. The lot is located in the provinces of Talara and Contralmirante Villar, departments of Piura and Tumbes, Grau region, northeastern Peru. To date, the Company is in the process of obtaining the approval of the Abandonment Plan in order to execute the activities under its responsibility due to the termination of the Contract.
| v. | Contract for the operation of hydrocarbon supply terminals. |
On July 16, 2014, Petroperu S.A. signed contracts for the operation of the North and Central hydrocarbon supply terminals with the subsidiary Unna Energia S.A. and Oiltanking Peru S.A.C., for the provision of reception, storage and dispatch services for a term of twenty years from the date of signing the contracts, for which the Terminales del Peru Consortium was formed, which began operating on September 2, 2014. Unna Energia S.A. is the operator and both consortium members exercise joint control of the business and have a 50% shareholding.
F-46
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| D. | Joint operations |
| Percentage of interest | ||||||||||||
| Joint operations | 2021 | 2022 | 2023 | |||||||||
| AENZA S.A.A. | ||||||||||||
| - Concesionaria La Chira S.A. | % | % | % | |||||||||
| Cumbra Peru S.A. | ||||||||||||
| - Consorcio Huacho Pativilca | % | % | % | |||||||||
| - Consorcio GyM – CONCIVILES | % | % | % | |||||||||
| - Consorcio Chicama – Ascope | % | % | % | |||||||||
| - Consorcio Constructor Alto Cayma | % | % | % | |||||||||
| - Consorcio Ermitaño | % | % | % | |||||||||
| - Consorcio GyM-Stracon | % | % | % | |||||||||
| - Consorcio HV GyM | % | % | % | |||||||||
| - Consorcio La Chira | % | % | % | |||||||||
| - Consorcio Lima Actividades Comerciales Sur | % | % | % | |||||||||
| - Consorcio Lima Actividades Sur | % | % | % | |||||||||
| - Consorcio Rio Urubamba | % | % | % | |||||||||
| - Consorcio Alto Cayma | % | % | % | |||||||||
| - Consorcio La Gloria | % | % | % | |||||||||
| - Consorcio Norte Pachacutec | % | % | % | |||||||||
| - Consorcio Italo Peruano | % | % | % | |||||||||
| - Consorcio Vial Quinua | % | % | % | |||||||||
| - Consorcio Constructor Ductos del Sur | % | % | % | |||||||||
| - Consorcio Constructor Chavimochic | % | % | % | |||||||||
| - Consorcio Intipunku | % | % | % | |||||||||
| Unna Energia S.A. | ||||||||||||
| - Consorcio Terminales | % | % | % | |||||||||
| - Terminales del Peru | % | % | % | |||||||||
| Unna Transporte S.A.C. | ||||||||||||
| - Consorcio Peruano de Conservación | % | % | % | |||||||||
| - Consorcio Manperan | % | % | % | |||||||||
| - Consorcio Vial Sierra | % | % | % | |||||||||
| - Consorcio Vial Ayahuaylas | % | % | % | |||||||||
| - Consorcio Vial Sullana | % | % | % | |||||||||
| - Consorcio Vial del Sur | % | % | % | |||||||||
| - Consorcio Obras Viales | % | - | ||||||||||
| Cumbra Ingenieria S.A. | ||||||||||||
| - Consorcio Vial la Concordia | % | % | % | |||||||||
| - Consorcio GMI- Haskoningdhv | % | % | % | |||||||||
| - Consorcio Supervisor Ilo | % | % | % | |||||||||
| - Consorcio Poyry-GMI | % | % | % | |||||||||
| - Consorcio Internacional Supervision Valle Sagrado | % | % | % | |||||||||
| - Consorcio Ecotec – GMI – PIM | % | % | % | |||||||||
| - Consorcio Ribereno Chinchaycamac | % | % | % | |||||||||
| - Consorcio Supervisor GRH | % | % | % | |||||||||
| - Consorcio Ecotec – GMI | % | % | % | |||||||||
All joint agreements listed above are operated in Peru.
F-47
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
The main activities of the joint operations correspond to:
| Joint agreements | Economic activity | |
| AENZA S.A.A. |
Construction, operation, and maintenance of the raw sewage treatment plant of La Chira to the south of Lima. The purpose of the project is to face environmental problems of Lima, due to raw sewage flowing into the sea. | |
| Cumbra Peru S.A. |
Consortiums created only to come into construction contracts. | |
| Unna Energia S.A. |
Terminales del Peru and Consorcio Terminales provide services of reception, storage, shipment, and transportation of liquid hydrocarbons such as gasoline, fuel for aircrafts, diesel and residual fuel, among others. | |
| Unna Transporte S.A.C. |
Services of refurbishment, routinary and regular maintenance of highways, and highway preservation and conservation services. | |
| Cumbra Ingenieria S.A. |
Engineering advisory and consulting services, execution of studies and projects, project management, and work supervision. |
| 7. | Operating Segments |
| A. | Basis of Segmentation |
The Corporation has four strategic division, which are its reportable segments. These reportable segments offer different products and services, and are managed separately because they require different business strategies.
Separate financial information is available for the reportable segments that are regularly evaluated by the Executive Committee (Chief operating decision maker, “CODM”) which is led by the Corporate General Manager, in deciding how to allocate resources and assess performance.
Reportable segments are reported consistently with the internal reports that are reviewed by the Executive Committee. This Committee acts as the maximum authority in operation decision making and is responsible for allocated resources and assessing the performance of each operating segments.
The Corporation’s reporting segments are: (i) engineering and construction, (ii) energy, (iii) infrastructure, and (iv) real estate.
Corporation’s sales and accounts receivable
are not concentrated in a few customers. There are no external customers representing
F-48
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| B. | Information on reportable segments |
The operations of Corporation in each reportable segment are as follows:
| (a) | Engineering and construction: traditional engineering services such as architectural planning, structural, civil and design engineering for advanced specialties including process design, simulation, and environmental services, as well as construction services related to: i) civil works, such as the construction of hydroelectric power stations and other large infrastructure facilities; (ii) electromechanical construction, such as concentrator plants, oil and natural gas pipelines, and electric transmission lines; iii) building construction, such as offices, residential buildings, hotels, and affordable housing projects, shopping centers, and industrial facilities. |
This reportable segment is mainly comprised by the companies Cumbra Peru S.A. and Cumbra Ingenieria S.A. (located in Peru), Vial y Vives D.S.D. (located in Chile) and Morelco S.A. (located in Colombia). These companies are engaged in engineering and construction services and subjected to the execution of contracts and compliance of the regulations applicable to the engineering and construction industry. These construction companies can execute projects in similar countries in South America (Peru, Chile and Colombia).
| (b) | Energy: oil exploration, exploitation, production, treatment, and trade of oil, separation and trade of natural gas and its byproducts at the gas processing plant, as well as the construction and assembly of oil facilities or those linked to the oil and gas industry and the storage and dispatch of fuel and oil by products. |
| (c) | Infrastructure: long-term concessions or similar contractual arrangements in Peru for |
| (d) | Real Estate: develops and sales properties to low and middle-income, which are experiencing a significant increase in available income, and also luxury properties to a lesser degree, as well as the development of commercial and office space. |
F-49
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Engineering | Infrastructure | Parent | ||||||||||||||||||||||||||||||||||
| In thousands of soles | and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Company and other entities | Eliminations | Consolidated | |||||||||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||
| Trade accounts receivables, net | ||||||||||||||||||||||||||||||||||||
| Accounts receivable from related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Other accounts receivable, net | ( | ) | ||||||||||||||||||||||||||||||||||
| Inventories, net | ( | ) | ||||||||||||||||||||||||||||||||||
| Prepaid expenses | ||||||||||||||||||||||||||||||||||||
| Total current assets | ( | ) | ||||||||||||||||||||||||||||||||||
| Trade accounts receivable, net | ||||||||||||||||||||||||||||||||||||
| Accounts receivable from related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Prepaid expenses | ( | ) | ||||||||||||||||||||||||||||||||||
| Other accounts receivable, net | ||||||||||||||||||||||||||||||||||||
| Inventories, net | ||||||||||||||||||||||||||||||||||||
| Investments in associates and joint ventures | ( | ) | ||||||||||||||||||||||||||||||||||
| Investment property, net | ||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | ( | ) | ||||||||||||||||||||||||||||||||||
| Intangible assets and goodwill, net | ||||||||||||||||||||||||||||||||||||
| Right-of-use assets, net | ( | ) | ||||||||||||||||||||||||||||||||||
| Deferred tax asset | ||||||||||||||||||||||||||||||||||||
| Total non-current assets | ( | ) | ||||||||||||||||||||||||||||||||||
| Total assets | ( | ) | ||||||||||||||||||||||||||||||||||
F-50
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Engineering | Infrastructure | Parent | ||||||||||||||||||||||||||||||||||
| In thousands of soles | and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Company and other entities | Eliminations | Consolidated | |||||||||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||
| Borrowings | ( | ) | ||||||||||||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||||||||||||||
| Trade accounts payable | ||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Current income tax | ||||||||||||||||||||||||||||||||||||
| Other accounts payable | ( | ) | ||||||||||||||||||||||||||||||||||
| Provisions | ||||||||||||||||||||||||||||||||||||
| Total current liabilities | ( | ) | ||||||||||||||||||||||||||||||||||
| Borrowings | ( | ) | ||||||||||||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||||||||||||||
| Trade accounts payable | ||||||||||||||||||||||||||||||||||||
| Other accounts payable | ||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Provisions | ||||||||||||||||||||||||||||||||||||
| Deferred tax liability | ||||||||||||||||||||||||||||||||||||
| Total non-current liabilities | ( | ) | ||||||||||||||||||||||||||||||||||
| Total liabilities | ( | ) | ||||||||||||||||||||||||||||||||||
| Equity attributable to owners of the Company | ( | ) | ||||||||||||||||||||||||||||||||||
| Non-controlling interest | ( | ) | ||||||||||||||||||||||||||||||||||
| Total liabilities and equity | ( | ) | ||||||||||||||||||||||||||||||||||
F-51
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Engineering | Infrastructure | Parent | ||||||||||||||||||||||||||||||||||
| In thousands of soles | and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Company and other entities | Eliminations | Consolidated | |||||||||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||
| Trade accounts receivables, net | ||||||||||||||||||||||||||||||||||||
| Accounts receivable from related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Other accounts receivable, net | ( | ) | ||||||||||||||||||||||||||||||||||
| Inventories, net | ( | ) | ||||||||||||||||||||||||||||||||||
| Prepaid expenses | ||||||||||||||||||||||||||||||||||||
| Total current assets | ( | ) | ||||||||||||||||||||||||||||||||||
| Long-term trade accounts receivable, net | ||||||||||||||||||||||||||||||||||||
| Long-term accounts receivable from related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Prepaid expenses | ( | ) | ||||||||||||||||||||||||||||||||||
| Other accounts receivable, net | ||||||||||||||||||||||||||||||||||||
| Inventories, net | ||||||||||||||||||||||||||||||||||||
| Investments in associates and joint ventures | ( | ) | ||||||||||||||||||||||||||||||||||
| Investment property, net | ||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | ||||||||||||||||||||||||||||||||||||
| Intangible assets and goodwill, net | ||||||||||||||||||||||||||||||||||||
| Right-of-use assets, net | ( | ) | ||||||||||||||||||||||||||||||||||
| Deferred tax asset | ||||||||||||||||||||||||||||||||||||
| Total non-current assets | ( | ) | ||||||||||||||||||||||||||||||||||
| Total assets | ( | ) | ||||||||||||||||||||||||||||||||||
F-52
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Engineering | Infrastructure | Parent | ||||||||||||||||||||||||||||||||||
| In thousands of soles | and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Company and other entities | Eliminations | Consolidated | |||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||
| Borrowings | ( | ) | ||||||||||||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||||||||||||||
| Trade accounts payable | ||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Current income tax | ||||||||||||||||||||||||||||||||||||
| Other accounts payable | ||||||||||||||||||||||||||||||||||||
| Provisions | ||||||||||||||||||||||||||||||||||||
| Total current liabilities | ( | ) | ||||||||||||||||||||||||||||||||||
| Borrowings | ( | ) | ||||||||||||||||||||||||||||||||||
| Bonds | ||||||||||||||||||||||||||||||||||||
| Trade accounts payable | ||||||||||||||||||||||||||||||||||||
| Other accounts payable | ||||||||||||||||||||||||||||||||||||
| Accounts payable to related parties | ( | ) | ||||||||||||||||||||||||||||||||||
| Provisions | ||||||||||||||||||||||||||||||||||||
| Deferred tax liability | ||||||||||||||||||||||||||||||||||||
| Total non-current liabilities | ( | ) | ||||||||||||||||||||||||||||||||||
| Total liabilities | ( | ) | ||||||||||||||||||||||||||||||||||
| Equity attributable to owners of the Company | ( | ) | ||||||||||||||||||||||||||||||||||
| Non-controlling interest | ( | ) | ||||||||||||||||||||||||||||||||||
| Total liabilities and equity | ( | ) | ||||||||||||||||||||||||||||||||||
F-53
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Operating segment performance
Segment Reporting
| Engineering | Infrastructure | Parent | ||||||||||||||||||||||||||||||||||
| In thousands of soles | and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Company and other entities | Eliminations | Consolidated | |||||||||||||||||||||||||||
| For the year ended December 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Revenue | ( | ) | ||||||||||||||||||||||||||||||||||
| Gross profit (loss) | ||||||||||||||||||||||||||||||||||||
| Administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other income and expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Operating profit (loss) | ( | ) | ||||||||||||||||||||||||||||||||||
| Financial expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Financial income | ( | ) | ||||||||||||||||||||||||||||||||||
| Interest for present value of financial asset or liability | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share of profit or loss in associates | ||||||||||||||||||||||||||||||||||||
| and joint ventures | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| (Loss) profit before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Income tax | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| (Loss) profit from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Loss from discontinuing operations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| (Loss) profit for the year | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| (Loss) profit from attributable to: | ||||||||||||||||||||||||||||||||||||
| Owners of the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
F-54
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Engineering | Infrastructure | Parent | ||||||||||||||||||||||||||||||||||
| In thousands of soles | and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Company and other entities | Eliminations | Consolidated | |||||||||||||||||||||||||||
| For the year ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Revenue | ( | ) | ||||||||||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||||||||||||||||||||||
| Administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Other income and expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Operating profit (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Financial expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Financial income | ( | ) | ||||||||||||||||||||||||||||||||||
| (Loss) gain on present value of financial asset or financial liability | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share of profit or loss in associates and joint ventures | ( | ) | ||||||||||||||||||||||||||||||||||
| (Loss) profit before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Income tax | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| (Loss) profit for the year | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| (Loss) profit from attributable to: | ||||||||||||||||||||||||||||||||||||
| Owners of the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Non-controlling interest | ( | ) | ||||||||||||||||||||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
F-55
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| Engineering | Infrastructure | Parent | ||||||||||||||||||||||||||||||||||
| In thousands of soles | and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Company and other entities | Eliminations | Consolidated | |||||||||||||||||||||||||||
| For the year ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Revenue | ( | ) | ||||||||||||||||||||||||||||||||||
| Gross profit (loss) | ||||||||||||||||||||||||||||||||||||
| Administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other income and expenses | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Operating profit (loss) | ( | ) | ||||||||||||||||||||||||||||||||||
| Financial expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Financial income | ( | ) | ||||||||||||||||||||||||||||||||||
| Interests for present value of financial asset or liability | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share of profit or loss in associates and joint ventures | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Profit (loss) before income tax | ( | ) | ||||||||||||||||||||||||||||||||||
| Income tax | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| (Loss) profit for the year | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Profit (loss) from attributable to: | ||||||||||||||||||||||||||||||||||||
| Owners of the Company | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Non-controlling interest | ( | ) | ||||||||||||||||||||||||||||||||||
| ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
F-56
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Inter-segmental sale transactions are made at prices similar to those that would have been agreed to with non-related third parties. Revenues from external customers reported are measured in a manner consistent with the basis of preparation of the consolidated statement of profit or loss. Sale of goods are related to real estate segment. Revenues from services are related to other segments.
| C. | Geographic information: |
Revenue derived from operations abroad (Chile
and Colombia) represents
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Revenues: | ||||||||||||
| - Peru | ||||||||||||
| - Chile | ||||||||||||
| - Colombia | ||||||||||||
| Non-current assets: | ||||||||||||
| - Peru | ||||||||||||
| - Chile | ||||||||||||
| - Colombia | ||||||||||||
| D. | EBITDA adjusted for other items |
The Executive Committee uses adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as the primary relevant indicator to understanding the operating performance of the Corporation and its operating segments.
Adjusted EBITDA is not a measurement of results based on International Financial Reporting Standards. The Corporation’s definition related to adjusted EBITDA may not be comparable to similar performance measures and disclosures from other entities.
| In thousands of soles | 2021 (*) | 2022 | 2023 | |||||||||
| Net (loss) profit | ( | ) | ( | ) | ||||||||
| Financial income and expenses | ||||||||||||
| Interests for present value of financial asset or liability | ( | ) | ||||||||||
| Income tax | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Adjusted EBITDA | ||||||||||||
| Adjustments to EBITDA - Other adjustments | ||||||||||||
| Impairment of investments | ||||||||||||
| Provisions: civil compensation and legal claims | ||||||||||||
| Put option on Morelco S.A.S. acquisition | ( | ) | ||||||||||
| Adjusted EBITDA for other adjustments | ||||||||||||
| (*) |
F-57
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | 2021 (*) | 2022 | 2023 | |||||||||
| Engineering and construction | ( | ) | ||||||||||
| Energy | ||||||||||||
| Infrastructure | ||||||||||||
| Real estate | ||||||||||||
| Parent company and other entities | ( | ) | ||||||||||
| Intercompany eliminations | ( | ) | ( | ) | ( | ) | ||||||
| (*) |
| 8. | Financial Instruments |
| A. | Financial instruments by category |
Financial assets related to concession agreements are shown in the consolidated statement of financial position as ’short-term trade accounts receivable’ and ‘long-term trade accounts receivable’.
| In thousands of soles | 2022 | 2023 | ||||||
| Financial assets according to the consolidated statement of financial position | ||||||||
| Loans and accounts receivable at amortized cost: | ||||||||
| - Cash and cash equivalents | ||||||||
| - Trade accounts receivable and other accounts receivable | ||||||||
| (excluding non-financial assets) (i) | ||||||||
| - Financial assets related to concession agreements (ii) | ||||||||
| - Accounts receivable from related parties | ||||||||
| In thousands of soles | 2022 | 2023 | ||||||
| Financial liabilities according to the consolidated statement of financial position | ||||||||
| Other financial liabilities at amortized cost: | ||||||||
| - Other financial liabilities | ||||||||
| - Finance leases | - | |||||||
| - Lease liability for right-of-use asset | ||||||||
| - Bonds | ||||||||
| - Trade and other accounts payable | ||||||||
| (excluding non-financial liabilities) (iii) | ||||||||
| - Accounts payable to related parties | ||||||||
| Other financial liabilities: | ||||||||
| - Other provisions (iv) | ||||||||
| (i) |
| (ii) |
| (iii) |
| (iv) |
F-58
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| B. | Credit quality of financial assets |
The credit quality of financial assets that are neither past due nor impaired can be assessed with reference to external risk ratings, if any, or based on historical information on the default rates of their counterparties, see note 4.A(b).
| In thousands of soles | 2022 | 2023 | ||||||
| Cash and cash equivalents (*) | ||||||||
| Banco de Credito del Peru (A+) | ||||||||
| Banco Internacional del Peru (A) | ||||||||
| Banco Continental BBVA (A+) | ||||||||
| Scotiabank Peru (A+) | ||||||||
| Citibank del Peru (A+) | ||||||||
| Banco Santander Chile (AAA) | ||||||||
| Banco de la Nacion (A) | ||||||||
| Banco de Bogota (AAA) | ||||||||
| Banco Santander Peru (A+) | ||||||||
| Banco Scotiabank Chile (A+) | ||||||||
| Banco Interamericano de Finanzas (A) | ||||||||
| Other | ||||||||
| (*) |
For banks in Peru, these risk ratings are obtained from the risk rating agencies authorized by the SBS. For banks in Chile, ratings are obtained from the risk rating agencies authorized by the Comision para el Mercado Financiero – CMF (Financial Market Commission) of Chile (Fitch Chile Clasificadora de Riesgo Ltda. and ICR International Credit Rating Cia Clasificadora de Riesgo Ltda.). For banks in Colombia, ratings are obtained from the following financial institutions: Fitch Ratings, Value and Risk Rating S.A., BRC Standard and Poor’s Rating, and Technical I of BRC Investor Services S.A. SCV.
The credit quality of customers is assessed in three categories (internal classification):
| A: | new customers/related parties (less than six months); |
| B: | existing customers/related parties (with more than six months of trade relationship) with no previous default history; and |
| C: |
F-59
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | Note | 2022 | 2023 | |||||||
| Trade accounts receivable | 10 | |||||||||
| Counterparties with no external risk rating | ||||||||||
| A | ||||||||||
| B | ||||||||||
| C | ||||||||||
| Receivable from related parties and joint operators | ||||||||||
| B (*) | ||||||||||
| C | ||||||||||
| (*) |
The total balance of trade accounts receivable and accounts receivable from related parties is subject to the terms and conditions of the respective contract. They have not been renegotiated.
| 9. | Cash and Cash Equivalents |
| In thousands of soles | 2022 | 2023 | ||||||
| Cash on hand | ||||||||
| Remittances in-transit | ||||||||
| Current accounts (a) | ||||||||
| Trust account - specific use founds (b) | ||||||||
| Time deposits (c) | ||||||||
| Total Cash and Cash equivalents | ||||||||
| (a) |
| (b) |
| In thousands of soles | 2022 | 2023 | ||||||
| Operational funds | ||||||||
| Consortium funds | ||||||||
| Reserve funds (i) | ||||||||
| Guarantee funds | ||||||||
| (i) |
| In thousands of soles | 2022 | 2023 | ||||||
| Tren Urbano de Lima S.A. | ||||||||
| Red Vial 5 S.A. | ||||||||
F-60
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (c) |
| Interest | ||||||||||||||
| In thousands of soles | Financial entities | rate | 2022 | 2023 | ||||||||||
| Viva Negocio Inmobiliario S.A.C. | ||||||||||||||
| Tren Urbano de Lima S.A. | ||||||||||||||
| Tren Urbano de Lima S.A. | ||||||||||||||
| AENZA S.A.A. | ||||||||||||||
| Red Vial 5 S.A. | ||||||||||||||
| Cumbra Peru S.A. | ||||||||||||||
| Aenza Servicios Corporativos S.A.C. | ||||||||||||||
| Unna Transporte S.A.C. | ||||||||||||||
| Unna Energia S.A. | ||||||||||||||
| Carretera Sierra Piura S.A.C. | ||||||||||||||
| Concesionaria La Chira S.A. | ||||||||||||||
| Carretera Andina del Sur S.A.C. | ||||||||||||||
| Vial y Vives - DSD S.A. | ||||||||||||||
| Unna Energia S.A. | ||||||||||||||
Cash and cash equivalents do not represent a significant credit or interest rate risk; therefore, their carrying amounts approximate their fair value.
| 10. | Trade Accounts Receivable, net |
| In thousands of soles | 2022 | 2023 | ||||||
| Receivables (a) | ||||||||
| Unbilled receivables - Subsidiaries (b) | ||||||||
| Unbilled receivables - Concessions (c) | ||||||||
| Current portion | ||||||||
| Non-current portion | ||||||||
As of December 31, 2022 and 2023, trade accounts receivable are denominated in local and foreign currency, have current maturities, do not accrue interest and do not have specific guarantees. The fair value of current accounts receivable is similar to carrying amount since its average collection period is less than sixty (60) days.
F-61
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | 2022 | 2023 | ||||||
| Tren Urbano de Lima S.A. | ||||||||
| Cumbra Peru S.A. | ||||||||
| Unna Energia S.A. | ||||||||
| Cumbra Ingenieria S.A. | ||||||||
| Carretera Andina del Sur S.A.C. | ||||||||
| Unna Transporte S.A.C. | ||||||||
| Viva Negocio Inmobiliario S.A.C. (i) | ||||||||
| Carretera Sierra Piura S.A.C. | ||||||||
| Concesionaria La Chira S.A. | ||||||||
| Red Vial 5 S.A. | ||||||||
| Others | ||||||||
The balances of trade accounts receivable described above are mainly related to the economic activity detailed in note 6.
| (i) |
| (a) |
As of December 31, 2022 and 2023 the Management performed the assessment of credit risk exposure on trade receivables.
| In thousands of soles | 2022 | 2023 | ||||||
| Current | ||||||||
| Past due up to 30 days | ||||||||
| Past due from 31 days up to 90 days | ||||||||
| Past due from 91 days up to 120 days | ||||||||
| Past due from 121 days up to 360 days | ||||||||
| Past due over 360 days | ||||||||
As of December 31,
2023, the amount of due debts over three hundred and sixty (360) days mainly includes invoices receivable from subsidiaries: Unna Transporte
S.A.C. for S/
F-62
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (b) |
| In thousands of soles | 2022 | 2023 | ||||||
| Cumbra Peru S.A. | ||||||||
| Cumbra Ingenieria S.A. | ||||||||
| Unna Transporte S.A.C. | ||||||||
| Unna Energia S.A. | ||||||||
| Others | ||||||||
| In thousands of soles | 2022 | 2023 | ||||||
| Infrastructure | ||||||||
| Operation and maintenance of roads | ||||||||
| Others | ||||||||
| Energy | ||||||||
| Engineering and Construction | ||||||||
| Cumbra Peru S.A. and subsidiaries | ||||||||
| Cumbra Peru S.A. - Jorge Chavez Airport | ||||||||
| Cumbra Peru S.A. - Compañia Minera Buenaventura Project | ||||||||
| Cumbra Peru S.A. - EPC Planta Hidrogeno UA – PMRT | ||||||||
| Cumbra Peru S.A. - Concentrator Plant and tunnel of Quellaveco | ||||||||
| Cumbra Peru S.A. - EPC Captacion Agua Mar y Afluentes UA - PMRT | ||||||||
| Cumbra Peru S.A. - EPC Edificios UA – PMRT | ||||||||
| Cumbra Peru S.A. - Toquepala Concentrator Maintenance Project | ||||||||
| Cumbra Peru S.A. - Rio Urubamba Consortium | ||||||||
| Cumbra Peru S.A. - Quebrada Honda Test Plant Project | ||||||||
| Cumbra Peru S.A. - Gasoducto Piura Project | ||||||||
| Vial y Vives - DSD S.A. - Quebrada Blanca Project | ||||||||
| Vial y Vives - DSD S.A. - Engineering and Construction works | ||||||||
| Morelco S.A.S. - Santa Monica Project | ||||||||
| Morelco S.A.S. - Termosuria Project | ||||||||
| Morelco S.A.S. - Engineering and Construction Works | ||||||||
| Cumbra Ingenieria S.A. | ||||||||
| Cumbra Ingenieria S.A. - Mina Gold Fields La Cima S.A. Project | ||||||||
| Others | ||||||||
| Others | ||||||||
In the Engineering and Construction segment, as of December 31, 2023, contract assets correspond mainly to the project related to the construction of the Jorge Chavez Airport Terminal (Intipunku Consortium), and the Santa Monica project of the indirect subsidiary Morelco and the Quebrada Blanca project of the subsidiary Vial y Vives. The Company expects to realize these assets in the normal course of business.
F-63
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (c) |
| In thousands of soles | 2022 | 2023 | ||||||
| Tren Urbano de Lima S.A. (c.1) | ||||||||
| Red Vial 5 S.A. (c.2) | ||||||||
| Carretera Andina del Sur S.A.C. | ||||||||
| Carretera Sierra Piura S.A.C. | ||||||||
| Concesionaria La Chira S.A. | ||||||||
| (c.1) |
| Carrying amount | Fair value | |||||||||||||||
| In thousands of soles | 2022 | 2023 | 2022 | 2023 | ||||||||||||
| Tren Urbano de Lima S.A. | ||||||||||||||||
| (c.2) |
| (d) |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Balance at January, 1 | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment | 25(iv) | ( | ) | ( | ) | |||||||||
| Impairment recovery | ||||||||||||||
| Write-off (i) | ||||||||||||||
| Exchange difference | ( | ) | ||||||||||||
| Translation adjustments | ( | ) | ( | ) | ||||||||||
| Balance at December, 31 | ( | ) | ( | ) | ( | ) | ||||||||
| (i) |
Management, after evaluating the receivable balances at the date of the consolidated financial statements, considers that, except for theimpairment registered, there are no accounts at risk of uncollectability.
In the opinion of Corporate management, the expected credit loss allowance and allowance for trade receivables adequately cover the risk of uncollectability as of December 31, 2022 and 2023.
F-64
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 11. | Transactions with Related Parties and Joint Operators |
| A. | Transactions with related parties |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Revenue from sales of goods and services: | ||||||||||||
| - Joint operations | ||||||||||||
| Purchase of goods and services: | ||||||||||||
| - Associates | ||||||||||||
| B. | Related parties transactions |
Transactions among related parties are made based on current price lists and according to the terms and conditions similar to those agreed with third parties.
| 2022 | 2023 | |||||||||||||||
| In thousands of soles | Receivable | Payable | Receivable | Payable | ||||||||||||
| Current portion: | ||||||||||||||||
| Joint operations | ||||||||||||||||
| Consorcio Constructor Chavimochic | ||||||||||||||||
| Consorcio GyM Conciviles | ||||||||||||||||
| Consorcio Peruano de Conservacion | ||||||||||||||||
| Consorcio Vial Quinua | ||||||||||||||||
| Consorcio Intipunku | ||||||||||||||||
| Consorcio Manperan | ||||||||||||||||
| Consorcio TNT Vial y Vives – DSD Chile Ltda | ||||||||||||||||
| Consorcio Rio Urubamba | ||||||||||||||||
| Consorcio Italo Peruano | ||||||||||||||||
| Consorcio Ermitano | ||||||||||||||||
| Consorcio Rio Mantaro | ||||||||||||||||
| Others | ||||||||||||||||
| Other related parties | ||||||||||||||||
| Ferrovias S.A. | ||||||||||||||||
| Current portion | ||||||||||||||||
| Non-current portion | ||||||||||||||||
| Gasoducto Sur Peruano S.A. (note 14.a.i) | ||||||||||||||||
| Ferrovias S.A. | ||||||||||||||||
| Ferrovias Participaciones S.A. | ||||||||||||||||
| Others | ||||||||||||||||
| Non-current | ||||||||||||||||
As of December 31, 2022 and 2023, accounts receivable and accounts payable are mainly of current maturity and have no specific guarantees. These balances do not bear interest considering their maturity in the short term.
The corporation carries out its operations with related companies under the same conditions as those carried out with third parties; consequently, there are no differences in pricing policies or in the basis for tax settlement; with respect to payment methods, these do not differ from policies granted to third parties. Transactions with non-controlling interests are disclosed in note 34.
F-65
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| C. | Key Management remuneration |
Key Management includes executive and non-executive
directors, members of the Executive Committee and Internal Audit Management. In 2023 remuneration paid or payable to key Management amounted
to S/
| 12. | Other Accounts Receivable, Net |
| In thousands of soles | 2022 | 2023 | ||||||
| Claims and accounts receivable from third parties (a) | ||||||||
| Guarantee deposits (b) | ||||||||
| Credits and recoverable taxes (c) | ||||||||
| Advances to suppliers (d) | ||||||||
| Restricted fund (e) | ||||||||
| Accounts receivable from personnel | ||||||||
| Others | ||||||||
| Current portion | ||||||||
| Non-current portion | ||||||||
The fair value of the other short-term accounts
receivable is similar to their carrying amount due to their short-term maturity. The other non-current accounts receivable corresponds
mainly to claims to third parties and maturities range from
Maximum exposure to credit risk at the reporting date is the carrying amount of every class of other accounts receivable.
| (a) |
| In thousands of soles | 2022 | 2023 | ||||||
| Additional investments for operating contracts (a.1) | ||||||||
| Account receivable to the Ministerio de Desarrollo Agrario y Riego (a.2) | ||||||||
| Real estate project receivable (a.3) | ||||||||
| Claims to tax authorities (a.4) | ||||||||
| Accounts receivable from joint ventures (a.5) | ||||||||
| Settlement agreement with third parties (a.6) | ||||||||
| Account receivable from out-of-court settlement with third parties (a.7) | ||||||||
| Insurance claims for losses | ||||||||
| Others | ||||||||
| (a.1) |
F-66
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | 2022 | 2023 | ||||||
| Credited investments | ||||||||
| Non-credited investments | ||||||||
The additional investments are accredited based on the inspection report of the contracting party, both of the capital invested by the operator and of the compliance with the operational aspects, technical, safety, environmental and social standards and requirements of the project that is the subject of the additional investment. In accordance with the contracts for the operation of the North and Central hydrocarbon supply terminals, these accounts receivable from Petroperu do not accrue interest.
| (a.2) |
| (a.3) |
| (a.4) |
| (a.5) |
| (a.6) |
F-67
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (a.7) |
In December 2022, the Company reached
an agreement with TRT in order to put an end to the claims of both parties. As a result of this agreement, the Company impaired collection
rights for US$
| (b) | Corresponds to funds retained by customers for contracts mainly of the subsidiary Cumbra Peru S.A. These deposits are retained by customers in order to guarantee the subsidiary performs its obligations under the contracts. |
| In thousands of soles | 2022 | 2023 | ||||||
| Withholding funds on projects and Consortiums | ||||||||
| Withholding on V&V guarantees - DSD | ||||||||
| Quellaveco Project | ||||||||
| Gasoducto Piura | ||||||||
| Obras Electromecanicas Toquepala | ||||||||
| Withholding guarantees on Morelco | ||||||||
| Others | ||||||||
| Current portion | ||||||||
| Non-current portion | ||||||||
| (c) |
| In thousands of soles | 2022 | 2023 | ||||||
| VAT credit (c.1) | ||||||||
| Income tax on-account payments (c.2) | ||||||||
| ITAN and other recoverable taxes | ||||||||
F-68
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (c.1) |
| In thousands of soles | 2022 | 2023 | ||||||
| Cumbra Peru S.A. | ||||||||
| Tren Urbano de Lima S.A. | ||||||||
| Viva Negocio Inmobiliario S.A.C. | ||||||||
| Unna Transporte S.A.C. | ||||||||
| Carretera Andina del Sur S.A.C. | ||||||||
| Unna Energia S.A. | ||||||||
| Cumbra Ingenieria S.A. | ||||||||
| AENZA S.A.A. | ||||||||
| Others | ||||||||
| (c.2) |
| In thousands of soles | 2022 | 2023 | ||||||
| Cumbra Peru S.A. | ||||||||
| Unna Energia S.A. | ||||||||
| Unna Transporte S.A.C. | ||||||||
| Cumbra Ingenieria S.A. | ||||||||
| AENZA S.A.A. | ||||||||
| Carretera Andina del Sur S.A.C. | ||||||||
| AENZA Servicios Corporativos S.A.C. | ||||||||
| Others | ||||||||
| (d) |
| In thousands of soles | 2022 | 2023 | ||||||
| Cumbra Peru S.A. - Aeropuerto Jorge Chavez | ||||||||
| Cumbra Peru S.A. - Projects and Consortiums | ||||||||
| Tren Urbano de Lima S.A. - Alstom Transporte | ||||||||
| Others | ||||||||
F-69
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (f) |
| In thousands of soles | Tax credit | Claims to third parties | Total | |||||||||
| At January 1, 2021 | ( | ) | ( | ) | ( | ) | ||||||
| Additions | ( | ) | ( | ) | ||||||||
| Write-off | ||||||||||||
| Exchange difference | ( | ) | ( | ) | ||||||||
| Translations adjustments | ( | ) | ( | ) | ||||||||
| At December 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||
| At January 1, 2022 | ( | ) | ( | ) | ( | ) | ||||||
| Recovery | ( | ) | ( | ) | ||||||||
| Write-off | ||||||||||||
| Exchange difference | ||||||||||||
| Translations adjustments | ||||||||||||
| At December 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||
| At January 1, 2023 | ( | ) | ( | ) | ( | ) | ||||||
| Write-off | ||||||||||||
| Exchange difference | ||||||||||||
| Translations adjustments | ||||||||||||
| At December 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||
F-70
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
As of December 31, 2022, the additions correspond to: a) Cumbra Peru S.A. for S/ 115.6 million (Tecnicas Reunidas Talara S.A. S/ 113 million, Consorcio Chavimochic for S/ 1.9 million and Morelco S.A.S. for S/ 0.7 million); b) AENZA S.A.A. for S/ 3.1 million from Mota Engil; and c) Cumbra Ingenieria S.A. for S/ 0.6 million from Consorcio Supervisor Red Vial 4 (note 25.iv); and d) additions in the subsidiary Viva Negocio Inmobiliario S.A.C. recorded in other expenses for S/ 8.1 million mainly explained from Ancon Project (note 27.c).
| 13. | Inventories, Net |
| In thousands of soles | 2022 | 2023 | ||||||
| Land (a) | ||||||||
| Work in progress - Real estate (b) | ||||||||
| Finished properties (c) | ||||||||
| Construction materials (d) | ||||||||
| Merchandise and supplies (e) | ||||||||
| Allowance for inventory write-downs (f) | ( | ) | ( | ) | ||||
| Current | ||||||||
| Non-current | ||||||||
As of December 31, 2023, the non-current portion
of inventories includes S/
As of December 31, 2022, the non-current portion
of inventories includes S/
F-71
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (a) |
| In thousands of soles | 2022 | 2023 | ||||||
| Lurin (a.1) | ||||||||
| San Isidro (a.2) | ||||||||
| Barranco (a.3) | ||||||||
As of December 31, 2023, the provision
for land impairment was S/
| (a.1) |
| (a.2) |
| (a.3) |
| (b) |
| In thousands of soles | 2022 | 2023 | ||||||
| Los Parques de Comas | ||||||||
| Los Parques del Mar | ||||||||
| Los Parques del Callao | ||||||||
| Los Parques de Piura | ||||||||
| Others | ||||||||
During 2023, the Corporation has capitalized
in the following projects (note 2.Q), borrowing costs of S/
| (c) |
| In thousands of soles | 2022 | 2023 | ||||||
| Los Parques de Comas | ||||||||
| Los Parques de Carabayllo III | ||||||||
| Strip Callao | ||||||||
| Los Parques del Mar | ||||||||
| Huancayo | ||||||||
| Los Parques de Callao | ||||||||
| Los Parques de Piura | ||||||||
| Others | ||||||||
During 2023,
As of December 31, 2023, the balance
is presented net of the impairment provision of S/
F-72
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (d) |
| (e) |
| (f) |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Balance at January, 1 | ||||||||||||
| Additions | ||||||||||||
| Write-off | ( | ) | ( | ) | ||||||||
| Others | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December, 31 | ||||||||||||
| 14. | Investments in Associates and Joint Ventures |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Associates (a) | ||||||||||||
| Joint ventures (b) | ||||||||||||
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Associates | ( | ) | ( | ) | ||||||||
| Joint ventures | ||||||||||||
| ( | ) | |||||||||||
| (a) |
| Class of | Interest in capital | Carrying amount | ||||||||||||||||
| In thousands of soles | share | 2022 | 2023 | 2022 | 2023 | |||||||||||||
| Entity | % | % | ||||||||||||||||
| Inversiones Maje S.A.C. | ||||||||||||||||||
| Obratres S.A.C. | ||||||||||||||||||
| Gasoducto Sur Peruano S.A. (i) | ||||||||||||||||||
| Concesionaria Chavimochic S.A.C. (ii) | ||||||||||||||||||
| Others | ||||||||||||||||||
F-73
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Balance at January, 1 | ||||||||||||
| Impairment of investment (ii) | ( | ) | ||||||||||
| Decrease in capital | ( | ) | ||||||||||
| Equity interest in results | ( | ) | ( | ) | ||||||||
| Dividends received | ( | ) | ( | ) | ( | ) | ||||||
| Conversion adjustment | ( | ) | ( | ) | ||||||||
| Balance at December, 31 | ||||||||||||
The most significant associates are described as follows:
| i. |
In November 2015, the Corporation acquired a
On July 22, 2014, GSP signed a concession agreement with the Peruvian Government to build, operate, and maintain a pipeline transportation system of natural gas to meet the demand of cities in the south of Peru (hereinafter the “Concession Agreement”). Additionally, GSP signed an engineering, procurement and construction agreement with CCDS.
The Corporation made an investment of US$
Early termination of the Concession Agreement
On January 24, 2017 the Peruvian Ministerio de Energia y Minas del Peru (hereinafter “MEM”) notified the early termination of the Concession Agreement under Clause 6.7 for the failure of the concessionaire to accredit the financial closure within the contractual term, proceeding with the immediate execution of the entirety of the faithful performance guarantee.
The situation described in the previous paragraph
caused Management to recognize the impairment of its total investment equivalent to
On October 11, 2017, the agreement deed for the delivery of the assets of the south Peruvian gas pipeline concession between GSP and MEM was signed. The assets include the works, equipment, facilities and engineering studies provided for the execution of the project.
Upon termination of the Concession Agreement,
and in accordance with the provisions of clause 20 thereof, the Peruvian Government had the obligation to hire an internationally recognized
auditing firm to calculate the Net Book Value (hereinafter “NBV”) of the concession assets, and to call up to three auctions
on GSP’s assets. However, to date, the Peruvian State continues to fail to comply with these contractual obligations. The amount of the
NBV was calculated at US$
F-74
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Collection Actions of AENZA S.A.A.
On December 21, 2018, the Company asked the Peruvian Government for direct treatment and requested the payment of NBV in favor of GSP. On October 18, 2019, the Company filed with CIADI an arbitration request. On December 27, 2019 the Company withdrew the arbitration in compliance with a preliminary plea agreement signed with the Attorney General´s Office and Ad-hoc Peruvian Public Prosecutor’s Office on the same date. Withdrawing the arbitration before CIADI does not involve the loss of collection rights of the Company against GSP and does not restrict, limit, or impede GSP from asserting its rights against the Peruvian Government.
The Company and its internal and external legal advisors consider that the payment owed by the Government to GSP for the NBV are not within the withholding scope under Law 30737 that ensures the immediate payment of civil compensation in favor of the Peruvian Government in cases of corruption and related crimes, since this payment does not include any profit margin and/or not correspond to the sale of assets related to the project, but to a reimbursement for the investment made by the Concessionaire.
Bankruptcy of GSP
On December 4, 2017, GSP started a bankruptcy
proceeding before the INDECOPI. The Company maintains receivable recognized by INDECOPI of US$
On April 11, 2023, the Liquidation Agreement was approved, which defines the framework for the liquidator’s actions. The Liquidation Agreement includes the granting of powers to the liquidator with respect to representation, administrative, contractual and other relevant powers that allow him to comply with the obligations for which he was appointed, as well as the actions he is allowed to take in order to recover GSP’s assets and in accordance with the mechanisms set forth in the General Law of the Insolvency System.
On April 13, 2023, and under the powers granted to him by the Liquidation Agreement, the Liquidator requested the MEM to initiate the Direct Treatment procedure stipulated in the Concession Agreement.
On September 12, 2023, INDECOPI notified GSP of Resolution No. 4069-2023/CCO-INDECOPI which resolved to declare null and void the Board’s resolution approving the Liquidation Agreement because the Agreement does not foresee the modality and conditions of realization of the GSP assets other than the NBV (direct sale, auction, dation, etc.).
On November 21, 2023, the Meeting of Creditors was held with the
purpose of correcting the defect declared in the aforementioned resolution, through the approval of a new Liquidation Agreement.
However, this proposal only reached
In view of the above, on December 28, 2023, INDECOPI
ordered the ex officio liquidation of GSP and that its Technical Secretariat of the Commission, dated on January 12, 2024, convene a Single
Meeting of Creditors for January 29, 2024, in order to appoint a Liquidator for the process and approve a new Liquidation Agreement. The
Meeting is formed with the Creditors in attendance and approve the corresponding proposals by simple majority. Therefore, on the referred
day, with
F-75
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Amounts recognized in the consolidated financial statements (note 11)
As of December 31, 2023, the net value of
the account receivable from GSP is approximately US$
The Company’s management maintains the recovery
estimate in
Based on management’s assessment and in conjunction with the opinion of the internal legal department and external legal counsel, the estimate of recoverability, impairment allowances and the net recognized value of the account receivable from GSP as of December 31, 2022 and 2023 is reasonable and sufficient as of the reporting date of the Corporation’s consolidated financial statements, see also note 5.A.v and note 11.
| ii. |
In
May 2014, Concesionaria Chavimochic S.A.C. (hereinafter the “Concessionaire”), in which AENZA has
According to the Concession Agreement, the works
of the third stage of the Project were structured in two phases. To date, the works of the first phase (Palo Redondo Dam) are
On October 4, 2022, the Arbitration Court notified
the parties with the award, which provided for the early termination of the Concession Agreement and ordered, among other things, that
the Grantor pay the Concessionaire the amount of US$
Despite the requests for exclusion and integration
of the award filed by the Concessionaire, the Court did not issue a decision within the deadline, and the award was consented to. As of
December 31, 2022, an impairment of its total investment amounting to S/
In February 2023, the Grantor partially executed
the Concessionaire’s performance bond, where AENZA S.A.A. was required to assume a total of US$
F-76
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (b) |
| Carrying amount | ||||||||||||||||||
| Class of | Interest in capital | As of December 31 | ||||||||||||||||
| In thousands of soles | share | 2022 | 2023 | 2022 | 2023 | |||||||||||||
| Entity | ||||||||||||||||||
| Logistica Quimicos del Sur S.A.C. | % | % | ||||||||||||||||
| Others | ||||||||||||||||||
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Balance at January, 1 | ||||||||||||
| Equity interest in results | ||||||||||||
| Dividends received | ( | ) | ( | ) | ||||||||
| Conversion adjustment | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December, 31 | ||||||||||||
In 2023, the Corporation received dividends from Logistica Quimicos
del Sur S.A. for S/
F-77
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 15. | Investment Property, Property, Plant and Equipment, and Right-of-Use Assets |
| A. | Investment property, net |
| (i) |
| In thousands of soles | Note | Land | Buildings | Work in progress | Total | |||||||||||||
| Cost | ||||||||||||||||||
| Balance at January 1, 2021 | ||||||||||||||||||
| Additions | ||||||||||||||||||
| Transfers | ||||||||||||||||||
| Reclassifications | ( | ) | ||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ||||||||||||
| At December 31, 2021 | ||||||||||||||||||
| Balance at January 1, 2022 | ||||||||||||||||||
| Additions | ||||||||||||||||||
| Disposals | ( | ) | ( | ) | ||||||||||||||
| Reclassifications | ||||||||||||||||||
| At December 31, 2022 | ||||||||||||||||||
| Balance at January 1, 2023 | ||||||||||||||||||
| Additions | ||||||||||||||||||
| Reclassifications | ( | ) | ||||||||||||||||
| At December 31, 2023 | ||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||
| Balance at January 1, 2021 | ( | ) | ( | ) | ||||||||||||||
| Depreciation charge | ( | ) | ( | ) | ||||||||||||||
| At December 31, 2021 | ( | ) | ( | ) | ||||||||||||||
| Balance at January 1, 2022 | ( | ) | ( | ) | ||||||||||||||
| Depreciation | ( | ) | ( | ) | ||||||||||||||
| Disposals | ||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ||||||||||||||
| At December 31, 2022 | ( | ) | ( | ) | ||||||||||||||
| Balance at January 1, 2023 | ( | ) | ( | ) | ||||||||||||||
| Depreciation (note 25.iii) | 25.iii | ( | ) | ( | ) | |||||||||||||
| Reclassifications | ( | ) | ( | ) | ||||||||||||||
| At December 31, 2023 | ( | ) | ( | ) | ||||||||||||||
| Carrying amounts | ||||||||||||||||||
| At January 1, 2021 | ||||||||||||||||||
| At December 31, 2021 | ||||||||||||||||||
| At December 31, 2022 | ||||||||||||||||||
| At December 31, 2023 | ||||||||||||||||||
F-78
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (ii) |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Cost of services and goods | 25(iii) | |||||||||||||
| Administrative expenses | 25(iii) | |||||||||||||
| (iii) |
| Year of | Methodology | ||||||||||||||
| Acquisition | Of | ||||||||||||||
| or | Level of | Valuation | |||||||||||||
| In thousands of soles | 2022 | 2023 | construction | Hierarchy | 2022 / 2023 | ||||||||||
| Investment properties built | |||||||||||||||
| “Agustino Plaza” Shopping Center (iii.a) | Level 3 | ||||||||||||||
| Lease office - Surquillo (iii.b) | Level 3 | ||||||||||||||
| Others | |||||||||||||||
| (iii.a) |
As of December 31, 2022 and 2023 there are liens on the Banco Interamericano de Desarrollo and Banco de Credito del Peru, respectively.
| (iii.b) |
As of December 31, 2022 and 2023 the assets present liens related to the trust with the syndicated line.
| (iv) |
| Minimum | Maximum | |||||||||||
| range | range | Average | ||||||||||
| US$ per M2 | US$ per M2 | US$ per M2 | ||||||||||
| “Agustino Plaza” Shopping Center | ||||||||||||
| Lease office - Surquillo | ||||||||||||
F-79
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (v) |
| In thousands of soles | 2022 | 2023 | ||||||
| ( | ( | ) | ( | ) | ||||
| (vi) |
| In thousands of soles | 2022 | 2023 | ||||||
| Within 1 year | ||||||||
| After 1 year but no more than 5 years | ||||||||
| More than 5 years | ||||||||
The fair value of the assets is determined based on the value assigned by an external appraiser.
The external appraiser uses the comparable market method, according to which the fair value of a property is estimated based on comparable transactions. The unit of comparison applied by the Corporation is the price per square meter.
| (vii) |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Lease income from investment properties | ||||||||||||
F-80
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| B. | Property, plant, and equipment, net |
| In thousands of soles | Land | Buildings | Machinery | Vehicles | Furniture and Fixtures | Other equipment | Replacement and in-transit units | Work in progress | Total | |||||||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | ||||||||||||||||||||||||||||||||||||
| Additions (i) | ||||||||||||||||||||||||||||||||||||
| Sale of assets (ii) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Subsidiary deconsolidation | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Transfers | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | ||||||||||||||||||||||||||||||||||||
| Additions (i) | ||||||||||||||||||||||||||||||||||||
| Sale of assets (ii) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Transfers | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | ||||||||||||||||||||||||||||||||||||
| Additions (i) | ||||||||||||||||||||||||||||||||||||
| Sale of assets (ii) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Transfers | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ||||||||||||||||||||||||||||||||||
| At December 31, 2023 | ||||||||||||||||||||||||||||||||||||
F-81
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | Land | Buildings | Machinery | Vehicles | Furniture and Fixtures | Other equipment | Replacement and in-transit units | Work in progress | Total | |||||||||||||||||||||||||||
| Accumulated depreciation and impairment | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Depreciation charge | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Sale of assets (ii) | ||||||||||||||||||||||||||||||||||||
| Disposals | ||||||||||||||||||||||||||||||||||||
| Subsidiary deconsolidation | ||||||||||||||||||||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Transfers | ( | ) | ||||||||||||||||||||||||||||||||||
| Impairment loss (iii) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| At December 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at January 1, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Depreciation charge | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Sale of assets (ii) | ||||||||||||||||||||||||||||||||||||
| Disposals | ||||||||||||||||||||||||||||||||||||
| Reclassifications | ( | ) | ||||||||||||||||||||||||||||||||||
| Transfers | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Impairment loss (iii) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ||||||||||||||||||||||||||||||||||
| At December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at January 1, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Depreciation charge | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Sale of assets (ii) | ||||||||||||||||||||||||||||||||||||
| Disposals | ||||||||||||||||||||||||||||||||||||
| Reclassifications | ( | ) | ||||||||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| At December 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Carrying amounts | ||||||||||||||||||||||||||||||||||||
| At January 1, 2021 | ||||||||||||||||||||||||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||||||||||||||||||
| At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| At December 31, 2023 | ||||||||||||||||||||||||||||||||||||
F-82
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (i) |
| (ii) |
| (iii) |
| (iv) |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Cost of sales and services | 25(iii) | |||||||||||||
| Administrative expenses | 25(iii) | |||||||||||||
| Depreciation discontinued operations | ||||||||||||||
| (v) |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Cost of acquisition | ||||||||||||
| Accumulated depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Net carrying amount | ||||||||||||
In 2023 payments for amortization
and interest on finance lease amounting to S/
| (vi) | The Corporation maintains insurance in force on its major assets in accordance with policies established by the Corporation’s management. In the opinion of Corporate Management, the Corporation’s insurance policies are consistent with industry practice. |
| (vii) | As of December 31, 2023, the Corporation’s management evaluated its long-lived assets for impairment and
found no material impairment. In 2022 the impairment effect amounted S/ |
F-83
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| C. | Right-of-use assets, net |
| (i) |
| In thousands of soles | Buildings | Machinery and equipment | Vehicles | Total | ||||||||||||
| Cost | ||||||||||||||||
| Balance at January 1, 2021 | ||||||||||||||||
| Additions | ||||||||||||||||
| Deconsolidation | ( | ) | ( | ) | ( | ) | ||||||||||
| Disposals | ( | ) | ( | ) | ||||||||||||
| Reclassifications | ( | ) | ( | ) | ||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
| At December 31, 2021 | ||||||||||||||||
| Balance at January 1, 2022 | ||||||||||||||||
| Additions | ||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||
| Translations adjustments | ( | ) | ( | ) | ||||||||||||
| At December 31, 2022 | ||||||||||||||||
| Balance at January 1, 2023 | ||||||||||||||||
| Additions | ||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Translations adjustments | - | |||||||||||||||
| At December 31, 2023 | ||||||||||||||||
| Accumulated depreciation | ||||||||||||||||
| Balance at January 1, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation charge | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deconsolidation | ||||||||||||||||
| Disposals | ||||||||||||||||
| Reclassifications | ( | ) | ||||||||||||||
| Translations adjustments | ||||||||||||||||
| At December 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at January 1, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation charge | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||
| Translations adjustments | ||||||||||||||||
| At December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at January 1, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation charge | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reclassifications | ||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
| At December 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Carrying amounts | ||||||||||||||||
| At January 1, 2021 | ||||||||||||||||
| At December 31, 2021 | ||||||||||||||||
| At December 31, 2022 | ||||||||||||||||
| At December 31, 2023 | ||||||||||||||||
F-84
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (ii) |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Cost of sales and services | 25(iii) | |||||||||||||
| Administrative expenses | 25(iii) | |||||||||||||
| Depreciation discontinued operations | ||||||||||||||
| (iii) | Costs related to the machinery and equipment lease for which the Corporation applied the exceptions described in IFRS 16 are the following: |
Leases under
In addition, leases, whose payments are entirely
variable and depend on their future performance or use, were excluded, in 2023. Expenses amounted to S/
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Depreciation of property, plant and equipment | 15.B | |||||||||||||
| Depreciation related to right-of-use assets | 15.C | |||||||||||||
| Depreciation related to investment property | 15.A | |||||||||||||
| Sub total Continuous operations | ||||||||||||||
| (-) Depreciation discontinued operations | ( | ) | - | - | ||||||||||
| 25 | ||||||||||||||
F-85
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 16. | Intangible Assets and Goodwill, net |
| (i) |
| In thousands of soles | Goodwill (iii) | Trade-marks (iv) | Concession (v) | Contractual relations with clients | Software | Costs of development of wells (vi) | Land use rights | Other assets (vii) | Total | |||||||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | ||||||||||||||||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||||||||||
| Capitalization of interest expenses | ||||||||||||||||||||||||||||||||||||
| Disposal | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Subsidiary deconsolidation | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | ||||||||||||||||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||||||||||
| Disposal | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Transfers | ||||||||||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | ||||||||||||||||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||||||||||
| Disposal | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Transfers | ( | ) | ||||||||||||||||||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ||||||||||||||||||||||||||||||||||
| At December 31, 2023 | ||||||||||||||||||||||||||||||||||||
F-86
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | Goodwill (iii) | Trade-marks (iv) | Concession (v) | Contractual relations with clients | Software | Costs of development of wells (vi) | Land use rights | Other assets (vii) | Total | |||||||||||||||||||||||||||
| Accumulated amortization and impairment | ||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Disposal | ||||||||||||||||||||||||||||||||||||
| Subsidiary deconsolidation | ||||||||||||||||||||||||||||||||||||
| Translations adjustments | ||||||||||||||||||||||||||||||||||||
| At December 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance at January 1, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Disposal | ||||||||||||||||||||||||||||||||||||
| Reclassifications | ||||||||||||||||||||||||||||||||||||
| Transfers | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Impairment loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Translations adjustments | ||||||||||||||||||||||||||||||||||||
| At December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance at January 1, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Disposal | ||||||||||||||||||||||||||||||||||||
| Reclassifications | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Translations adjustments | ( | ) | ||||||||||||||||||||||||||||||||||
| At December 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Carrying amounts | ||||||||||||||||||||||||||||||||||||
| At January 1, 2021 | ||||||||||||||||||||||||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||||||||||||||||||
| At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| At December 31, 2023 | ||||||||||||||||||||||||||||||||||||
F-87
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (ii) |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Cost of sales | ||||||||||||||
| Administrative expenses | ||||||||||||||
| Sub total | 25 | |||||||||||||
| (+) Amortization discontinued operations | ||||||||||||||
| (iii) |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Engineering and construction | ||||||||||||
| Electromechanical | ||||||||||||
As of December 31, 2023, goodwill
consists of an accumulated cost of S/
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 2021, 2022 and 2023, no impairment was identified.
| Engineering | ||||||||
| and | Electro- | |||||||
| In percentage | construction | mechanical | ||||||
| 2021 | ||||||||
| Gross margin | % | % | ||||||
| Terminal growth rate | % | % | ||||||
| Discount rate | % | % | ||||||
| 2022 | ||||||||
| Gross margin | % | % | ||||||
| Terminal growth rate | % | % | ||||||
| Discount rate | % | % | ||||||
| 2023 | ||||||||
| Gross margin | % | % | ||||||
| Terminal growth rate | % | % | ||||||
| Discount rate | % | % | ||||||
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.
F-88
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
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 -year (5) 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.
| (iv) |
As of December 31, 2021, Vial y
Vives – DSD trademark had an accumulated impairment of S/
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 | ||||||
| 2021 | ||||||||
| Average revenue growth rate | % | % | ||||||
| Terminal growth rate | % | % | ||||||
| Discount rate | % | % | ||||||
| 2022 | ||||||||
| Average revenue growth rate | % | % | ||||||
| Terminal growth rate | % | % | ||||||
| Discount rate | % | % | ||||||
| 2023 | ||||||||
| Average revenue growth rate | % | % | ||||||
| Terminal growth rate | % | % | ||||||
| Discount rate | % | % | ||||||
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.
F-89
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
Perpetual growth rate
The rate used to calculate the terminal or residual value in the valuation of the business.
| (v) |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Capitalization of second roadway | ||||||||||||
| EPC Contract | ||||||||||||
| Implementation for road safety | ||||||||||||
| Road improvement | ||||||||||||
| Disbursements for land acquisition | ||||||||||||
| Construction of the second tranche of the “Ancon-Huacho-Pativilca” highway | ||||||||||||
| Other intangible assets contracted for the delivery process | ||||||||||||
| Total Red Vial 5 S.A. | ||||||||||||
| Other concession | ||||||||||||
| (vi) | The Company, through one of its subsidiaries, Unna Energia S.A., operated, developed and produced hydrocarbons
from two oil fields under extraction services contracts entered into with the State, which have now expired. The contract for Lot I ended
on December 26, 2021 and for Lot V on October 7, 2023. Unna Energia is currently preparing the Termination Abandonment Plan for both contracts.
Both Abandonment Plans are expected to be approved this year and have been awarded to two specialist consulting firms. The provisions
recorded for the performance of the Studies and the execution of all the corresponding work have been estimated by Unna Energia and duly
recorded in the accounts in previous years. These provisions amount to S/ |
On December 10, 2014, the Peruvian
Government granted the Company the right to exploit Oil Lots III and IV for
The wells are amortized based on the estimated reserves until the end of the term of the contracts signed with Perupetro S.A. For Lot V, the wells are amortized based on the useful lives determined over the remaining terms.
| (vii) |
F-90
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 17. | Borrowings |
| Date of | Interest | Current | Non-current | |||||||||||||||||||||
| In thousands of soles | maturity | rate | Currency | 2022 | 2023 | 2022 | 2023 | |||||||||||||||||
| Bank loans | ||||||||||||||||||||||||
| Bridge loan (a) | USD | |||||||||||||||||||||||
| Banco de Credito del Peru (b) | USD | |||||||||||||||||||||||
| Banco Interamericano de Desarrollo (c) | USD | |||||||||||||||||||||||
| Banco de Credito del Peru (d) | USD | |||||||||||||||||||||||
| Banco de Credito del Peru | PEN | |||||||||||||||||||||||
| Banco BBVA Peru | USD | |||||||||||||||||||||||
| Bancolombia | COP | |||||||||||||||||||||||
| Banco de Bogota | COP | |||||||||||||||||||||||
| Banco de Credito del Peru | PEN | |||||||||||||||||||||||
| Banco Interamericano de Finanzas | PEN | |||||||||||||||||||||||
| Banco BBVA Peru | PEN | |||||||||||||||||||||||
| Other financial entities | ||||||||||||||||||||||||
| BCI Management Administradora General de Fondos (e) | USD | |||||||||||||||||||||||
| Other | PEN / CLP | |||||||||||||||||||||||
| Right-of-use-liabilities (f) | USD | |||||||||||||||||||||||
| Finance leases (g) | USD | |||||||||||||||||||||||
F-91
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (a) | On March 17, 2022, the Company entered into a bridge loan agreement for up to US$ |
On October 5, 2023
and December 27, 2023 payments of US$
As of December 31, 2023, the loan
amounts to S/
As of December 31, 2022 and 2023, the Company has complied with the covenants established in the loan agreement.
| (b) | Terminales del Peru (hereinafter “TP”), a joint operation of the subsidiary Unna Energia S.A.,
has a medium-term loan agreement with Banco de Credito del Peru (hereinafter BCP) to finance investments arising from the operation agreement
of North and Center terminals for 2015 to 2019 period, ending its availability period on December 31, 2022 with a maximum exposure limit
of US$ |
In addition, in November 2019, TP
signed a loan agreement to finance the additional investments from 2019 to 2023 for a credit line of US$
As of December 31, 2023, the amount
recorded for the loans equivalent to the
As of December 31, 2022 and 2023, TP is in compliance with the covenants established in the loan agreement.
| (c) | In December 2022, Viva Negocio Inmobiliario S.A.C. signed a loan agreement with the Banco Interamericano
de Desarollo, with a ten (10) year term and a two (2) year grace period for principal repayment, for the purpose of building social housing.
The loan was fully disbursed in January 2023, for US$ |
As of December 31, 2022 and 2023, Viva Negocio Inmobiliario S.A.C. has complied with the covenants established in the loan agreement.
| (d) |
F-92
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (e) | On May 29, 2018, the Company and Inversiones Concesiones Vial S.A.C. (“BCI Peru”) came into
an investment agreement with the intervention of Fondo de Inversiones BCI NV (“BCI Fund”) and BCI Management Administradora
General de Fondos S.A. (“BCI” Asset Management”) to monetize future dividends from Red Vial 5 S.A. to the Company. Upon
the signature of this agreement, the Company had to indirectly transfer its economic rights over |
In addition, it has been agreed that
the Company would have purchase options on
As of December 31, 2023, the loan
balance payable amounts to US$
| (f) |
| Interest | Date of | Total | ||||||||||
| In thousands of soles | rate | maturity | 2022 | 2023 | ||||||||
| AENZA S.A.A. | ||||||||||||
| Unna Energia S.A. | ||||||||||||
| Unna Transporte S.A.C. | ||||||||||||
| Other minors | ||||||||||||
| In thousands of soles | 2022 | 2023 | ||||||
| Up to 1 year | ||||||||
| From 1 to 5 years | ||||||||
| Over 5 years | ||||||||
| Future financial charges | ( | ) | ( | ) | ||||
| Present value of the lease liability for right-of-use asset obligations | ||||||||
F-93
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | 2022 | 2023 | ||||||
| Up to 1 year | ||||||||
| From 1 year to 5 years | ||||||||
| Over 5 years | ||||||||
| (g) |
| Interest | Date of | |||||||||||
| In thousands of soles | rate | maturity | 2022 | 2023 | ||||||||
| Viva Negocio Inmobiliario S.A.C. | ||||||||||||
| Cumbra Peru S.A. | ||||||||||||
| In thousands of soles | 2022 | |||
| Up to 1 year | ||||
| Future financial charges | ( | ) | ||
| Present value of the obligations for finance lease contracts | ||||
| In thousands of soles | 2022 | |||
| Up to 1 year | ||||
| (h) |
| Carrying amount | Fair value | |||||||||||||||
| In thousands of soles | 2022 | 2023 | 2022 | 2023 | ||||||||||||
| Bank loans | ||||||||||||||||
| Other financial entities | ||||||||||||||||
| Lease liability for right-of-use asset | ||||||||||||||||
| Finance leases | ||||||||||||||||
As of December 31, 2023, fair values
are based on discounted cash flows using borrowing rates between
F-94
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (i) |
| 2021 | ||||||||||||||||
| In thousands of soles | Bank loans | Other financial entities | Lease liability for right-of-use asset | Finance leases | ||||||||||||
| Balance at January, 1 | ||||||||||||||||
| Additions | ||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accrued interest | ||||||||||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Subsidiary deconsolidation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fair value | ||||||||||||||||
| Others | ( | ) | ||||||||||||||
| Balance at December, 31 | ||||||||||||||||
| 2022 | ||||||||||||||||
| In thousands of soles | Bank loans | Other financial entities | Lease liability for right-of-use asset | Finance leases | ||||||||||||
| Balance at January, 1 | ||||||||||||||||
| Additions | ||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accrued interest | ||||||||||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fair value | ||||||||||||||||
| Others | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance at December, 31 | ||||||||||||||||
| 2023 | ||||||||||||||||
| In thousands of soles | Bank loans | Other financial entities | Lease liability for right-of-use asset | Finance leases | ||||||||||||
| Balance at January, 1 | ||||||||||||||||
| Additions | ||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accrued interest | ||||||||||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fair value | ( | ) | ||||||||||||||
| Others | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at December, 31 | ||||||||||||||||
F-95
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 18. | Bonds |
| Date of | Interest | Current | Non-current | |||||||||||||||||||
| In thousands of soles | maturity | rate | Currency | 2022 | 2023 | 2022 | 2023 | |||||||||||||||
| Corporate bonds - Regulation S issued on the United States of America (a) | ||||||||||||||||||||||
| Corporate Bonds - Lima Stock Exchange issued on Peru (b) | ||||||||||||||||||||||
| Private bonds (c) | ||||||||||||||||||||||
| (a) |
These bonds include the following
collateral: (i) mortgage on the concession of which Tren Urbano de Lima S.A. is the concessionaire, (ii) security interest on the shares
of the Concessionaire, (iii) assignment of the Collection Rights of the Administration Trust, and (iv) a Flow Trust and Reserve Accounts
for Debt Service, Operation and Maintenance and ongoing Capex. Issuance costs amounted to S/
As of December 31, 2023, an accumulated
amortization amounting to S/
As of December 31, 2023, the balance
includes VAC adjustments and interest payable for S/
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Balance at January, 1 | ||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||
| Accrued interest and VAC | ||||||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December, 31 | ||||||||||||
As of December 31, 2022 and 2023, Tren Urbano de Lima S.A. complied with the corresponding covenants.
As of December 31, 2023, the fair
value amounts to S/
F-96
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (b) |
According to the terms of the bond issuance agreement, this financing is secured by: (i) a trust of flows from the collection rights and flows derived from the Concession, except for flows corresponding to the Remuneration and the Regulation Fee; (ii) a mortgage on the concession of which Red Vial 5 S.A. is the concessionaire; (iii) movable guarantees on shares; (iv) assignment of rights on the bank letter of guarantee and any other guarantee granted in the Construction Agreement; and (v) in general, all those additional guarantees granted in favor of the secured creditors if applicable.
The purpose of the granted funds was to finance the construction works of the second phase of Red Vial 5 and sales tax related to the execution of project expenses.
For the periods ended December 31, 2021, 2022 and 2023, the movement of this account is the following:
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Balance at January, 1 | ||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||
| Accrued interest | ||||||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December, 31 | ||||||||||||
As of December 31, 2022 and 2023, Red Vial 5 S.A. complied with the respective covenants.
As of December 31, 2023, the fair
value of bonds amounts to S/
| (c) |
In the first quarter of the year 2020,
bonds amounting to US$
For the periods ended December 31, 2021, 2022 and 2023, the movement of this account is the following:
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Balance at January, 1 | ||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||
| Exchange difference | ( | ) | ( | ) | ||||||||
| Accrued interest | ||||||||||||
| Interest paid | ( | ) | ( | ) | ( | ) | ||||||
| Balance at December, 31 | ||||||||||||
As of December 31, 2023, the fair
value amounts to S/
F-97
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (d) | On August 13, 2021, AENZA S.A.A. issued bonds convertible into voting common shares (hereinafter the “Bonds”).
The total amount of issuance was US$ |
Bonds were placed at local level and
were available for investors in Peru according to Peruvian legislation. The Bonds mature on February 2024 and bear interest at an annual
interest rate of
Pursuant to the terms and conditions
of the Bond, they may be converted into shares from the sixth month of the issuance date, according to the following procedure: 1) the
conversion day is the last business day of each month; 2) the conversion may be total or partial; 3) the conversion notice had to be sent
to the Bondholders’ Representative no later than five (5) business days prior to the conversion date, and 4) the conversion price
will be the minimum of (i)
The Company converted all bonds in
common shares in two tranches, the first one on February 28, 2022 for
| 19. | Trade Accounts Payable |
| Total | ||||||||
| In thousands of soles | 2022 | 2023 | ||||||
| Invoices payable (a) | ||||||||
| Provision of contract costs (b) | ||||||||
| Notes payable | ||||||||
| Current portion | ||||||||
| Non-current portion | ||||||||
F-98
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (a) |
| In thousands of soles | Invoices | Unbilled services received | ||||||||||||||||
| Project | Entity | 2022 | 2023 | 2022 | 2023 | |||||||||||||
| Infrastructure | ||||||||||||||||||
| Linea 1 - Metro de Lima | ||||||||||||||||||
| Operation and maintenance - Roads | ||||||||||||||||||
| Energy | ||||||||||||||||||
| Oil exploration and production | ||||||||||||||||||
| Petroleum storage and dispatch | ||||||||||||||||||
| Gas processing and commercialization | ||||||||||||||||||
| Others | ||||||||||||||||||
| Engineering and Construction | ||||||||||||||||||
| Jorge Chavez Airport (i) | ||||||||||||||||||
| Project San Gabriel - Buenaventura (ii) | ||||||||||||||||||
| Planta de Flotacion de Particulas Gruesas | ||||||||||||||||||
| Concentrator Plant and tunnel of Quellaveco | ||||||||||||||||||
| Project Via Expresa Linea Amarilla | ||||||||||||||||||
| EPC Captacion Agua Mar y Afluentes UA - PMRT | ||||||||||||||||||
| Planta Oxidos Marcobre | ||||||||||||||||||
| EPC Planta Hidrogeno UA - PMRT | ||||||||||||||||||
| Gasoducto Piura Project | ||||||||||||||||||
| Project C. Comercial Parque Arauco La Molina | ||||||||||||||||||
| Generating Plant Machu Picchu | ||||||||||||||||||
| Concentradora Toquepala | ||||||||||||||||||
| Refineria Talara | ||||||||||||||||||
| Desilting of the Chicama River | ||||||||||||||||||
| Cerro del Aguila Hydroelectric Power Plant | ||||||||||||||||||
| Filtro de Relaves Quebrada Honda | ||||||||||||||||||
F-99
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| In thousands of soles | Invoices | Unbilled services received | ||||||||||||||||
| Project | Entity | 2022 | 2023 | 2022 | 2023 | |||||||||||||
| EPC Edificios UA – PMRT | ||||||||||||||||||
| Proyecto Quebrada Blanca | ||||||||||||||||||
| Engineering and Construction Works | ||||||||||||||||||
| Proyecto Santa Monica (iii) | ||||||||||||||||||
| Proyecto Termosuria | ||||||||||||||||||
| Engineering and Construction Works | ||||||||||||||||||
| Project Mina Gold Fields La Cima S.A. | ||||||||||||||||||
| Others | ||||||||||||||||||
| Real Estate | ||||||||||||||||||
| Parent Company and other entities | ||||||||||||||||||
| Current portion | ||||||||||||||||||
| Non-current portion | ||||||||||||||||||
| (i) |
| (ii) |
| (iii) |
F-100
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 20. | Other Accounts Payable |
| In thousands of soles | 2022 | 2023 | ||||||
| Civil compensation to Peruvian Government (a) | ||||||||
| Advances received from customers (b) | ||||||||
| Taxes payable | ||||||||
| Salaries and other payable to personnel (c) | ||||||||
| Arbitration payable (d) | ||||||||
| Accounts payable Consorcio Ductos del Sur (e) | ||||||||
| Guarantee deposits (f) | ||||||||
| Share purchase agreement - Inversiones Sur (g) | ||||||||
| Acquisition of additional non-controlling interest (h) | ||||||||
| Royalties payable (i) | ||||||||
| Other accounts payable | ||||||||
| Current portion | ||||||||
| Non-current portion | ||||||||
| (a) | Corresponds to the liability due to the compensation in relation to their participation as minority partners
in certain entities that developed infrastructure projects in Peru with companies belonging to the Odebrecht group and projects related
to “Club de la Construccion”. As indicated in Note 1-C) on September 15, 2022, the collaboration and benefits agreement was
signed, through which AENZA recognizes it was utilized by certain former executives to commit illicit acts until 2016, and commits to
pay a civil penalty to the Peruvian Government of S/ |
On December 27, 2023, the initial
installment of the Civil Compensation was paid to the Peruvian Government for S/
F-101
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (b) |
| In thousands of soles | Project | 2022 | 2023 | |||||||
| Entity | ||||||||||
| Cumbra Peru S.A. | ||||||||||
| Viva Negocio Inmobiliario S.A.C. | ||||||||||
| Cumbra Peru S.A. | ||||||||||
| Cumbra Peru S.A. | ||||||||||
| Proyecto Especial de Infraestructura de Transporte Nacional | ||||||||||
| Vial y Vives - DSD S.A. | ||||||||||
| Cumbra Ingenieria S.A. | ||||||||||
| Vial y Vives - DSD S.A. | ||||||||||
| Vial y Vives - DSD S.A. | ||||||||||
| Cumbra Peru S.A. | ||||||||||
| Other | ||||||||||
| Current portion | ||||||||||
| Non-current portion | ||||||||||
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| (vi) |
F-102
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (c) |
| In thousands of soles | 2022 | 2023 | ||||||
| Vacation | ||||||||
| Compensation for time of service | ||||||||
| Bonus salaries | ||||||||
| Wages and salaries | ||||||||
| Workers’ profit sharing | ||||||||
| Other remuneration | ||||||||
| (d) |
| (e) |
| (f) |
| (g) |
| (h) |
| (i) |
F-103
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 21. | Other Provisions |
| Provision for | ||||||||||||||||
| Legal | Tax | closure | ||||||||||||||
| In thousands of soles | (a) | (b) | (c) | Total | ||||||||||||
| As of January 1, 2021 | ||||||||||||||||
| Additions | ||||||||||||||||
| Present value | ||||||||||||||||
| Reversal of provisions | ( | ) | ( | ) | ( | ) | ||||||||||
| Transfers | ( | ) | ||||||||||||||
| Reclasification | ( | ) | ||||||||||||||
| Compensation | ( | ) | ( | ) | ||||||||||||
| Desconsolidation of subsidiary | ( | ) | ( | ) | ||||||||||||
| Payments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Translation adjustment / Exchange difference | ||||||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Current portion | ||||||||||||||||
| Non-current portion | ||||||||||||||||
| Provision for | ||||||||||||||||
| Legal | Tax | closure | ||||||||||||||
| In thousands of soles | (a) | (b) | (c) | Total | ||||||||||||
| As of January 1, 2022 | ||||||||||||||||
| Additions | ||||||||||||||||
| Present value | ( | ) | ( | ) | ||||||||||||
| Reversal of provisions | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Transfers (*) | ( | ) | ( | ) | ( | ) | ||||||||||
| Payments | ( | ) | ( | ) | ( | ) | ||||||||||
| Translation adjustment / Exchange difference | ( | ) | ( | ) | ( | ) | ||||||||||
| As of December 31, 2022 | ||||||||||||||||
| Current portion | ||||||||||||||||
| Non-current portion | ||||||||||||||||
| (*) |
| Provision for | ||||||||||||||||
| Legal | Tax | closure | ||||||||||||||
| In thousands of soles | (a) | (b) | (c) | Total | ||||||||||||
| As of January 1, 2023 | ||||||||||||||||
| Additions | ||||||||||||||||
| Present value | ||||||||||||||||
| Reversal of provisions | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||
| Payments | ( | ) | ( | ) | ( | ) | ||||||||||
| Translation adjustment / Exchange difference | ( | ) | ( | ) | ( | ) | ||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Current portion | ||||||||||||||||
| Non-current portion | ||||||||||||||||
F-104
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (a) | Legal contingencies mainly correspond to: |
Civil compensation to Peruvian Government
The Agreement accrual amounting to
S/
Administrative process Instituto Nacional de Defensa de la Competencia y de la Proteccion de la Propiedad Intelectual (INDECOPI)
On March 9, 2021,
Cumbra Peru S.A. was notified with the Final Instruction Report prepared by the Technical Secretariat of the INDECOPI Commission, related
to the administrative sanctioning procedure against 33 construction companies and 26 of their executives for having adopted a coordination
system through which they agreed to share several bids called by Provias Nacional and other entities of the Peruvian State. On November
15, 2021, the Commission by Resolution N° 080-021-CLC-INDECOPI resolved to sanction in first administrative instance the above mentioned
companies and their executives, including Cumbra Peru S.A. On December 9, 2021, Cumbra Peru S.A. filed an appeal against the referred
resolution, suspending any execution of the resolution, including the payment of the fine imposed and the compliance with the corrective
measures ordered. As of December 31, 2023, the Company maintains a provision that was recognized amounting to S/
Shareholder class action lawsuits in the Federal Court of the Eastern District of New York
During the first quarter of 2017,
two class action lawsuits were filed against the Company and some former officers by virtue of the Securities Act before the Federal Court
of the East District of New York. On July 2, 2020, the Company signed a final transaction agreement with the plaintiffs though which the
parties commited to settling the class action lawsuits and the Company commits to paying US$
In relation to the agreement, as of
December 31, 2021, the Company had paid US$
Other legal provisions
The Corporation has administrative
lawsuits for S/
| (b) | Tax contingencies corresponds mainly to: |
| (i) | Appeal Process before the Tax Court for S/ |
| (ii) | Claims before SUNAT for S/ |
| (iii) | Claims before the Judiciary for S/ |
| (iv) | Non-contentious proceedings for S/ |
F-105
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (c) | Provision for closure corresponds mainly to: |
| (i) | Provisions for well closure of the subsidiary Unna Energia S.A. for S/ |
| (ii) | Provisions for associated costs of the subsidiary Red Vial 5 S.A. related to the closing of the concession
contract for S/ |
| (iii) | Other provisions in Cumbra Peru S.A. for S/ |
| 22. | Equity |
| A. | Capital |
On February 28, 2022, in accordance with the terms
and conditions of the convertible bond, the holders of
Additionally, on March 31, 2022, holders of
On December 1, 2022, the capital increases were
registered and the statutes were amended, confirming that the Company’s capital was S/
On December 27, 2023, the Company issued
As of December 31, 2023, a total of
As of December 31, 2022, a total of
As of December 31, 2021, a total of
As of December 31, 2023, the Company’s shares
registered a stock price quotation at the end of the year of S/
F-106
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| B. | Legal Reserve |
According to the Business Companies Act, any company
is required to allocate at least
According to the resolution of the Shareholders’ Meeting, the balance of the Legal Reserve has been fully offset against the accumulated losses as of December 2023.
| C. | Voluntary reserve |
As of December 31, 2022, this reserve amounting
to S/
According to the resolution of the Shareholders’ Meeting, the balance of the Voluntary reserve has been fully offset against the accumulated losses as of December 2023.
| D. | Share premium |
This item recognizes the difference between the face value and transaction value for the acquisitions of shares in non-controlling interests.
This item includes the excess of total income
obtained by shares issued in 2013, 2019 and 2023 in contrast to their face value of S/
According to the resolution of the Shareholders’ Meeting, the balance of the Share premium has been fully offset against the accumulated losses as of December 2023.
F-107
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 23. | Deferred Income Tax |
| (a) |
| Deferred tax assets | At January 1, 2021 | (Debit)
credit to P&L | Sale of a subsidiary | Others | At December 31, 2021 | (Debit)
credit to P&L | Reclassification | At December 31, 2022 | (Debit)
credit to P&L | Reclassification | Others | At December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Provisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Difference in depreciation rates | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tax losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Work in process | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Accrual for unpaid vacations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Impairment | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Fair value | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Tax goodwill | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Earning stripping rules | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Unpaid non domiciled expenses | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Right-of-use assets | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase price allocation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Total | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Deferred tax liabilities | At January 1, 2021 | (Debit) credit to P&L | Sale of a subsidiary | At December 31, 2021 | (Debit) credit to P&L | Reclassification | Others | At December 31, 2022 | (Debit) credit to P&L | Reclassification | At December 31, 2023 | |||||||||||||||||||||||||||||||||
| Difference in depreciation rates | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Deferred income | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Work in process | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Tax receivable | ||||||||||||||||||||||||||||||||||||||||||||
| Borrowing costs capitalized | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Purchase price allocation | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
F-108
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (b) |
| 2022 | 2023 | |||||||||||||||||||||||
| Deferred tax asset | Reversal expected in the following twelve months | Reversal expected after twelve months | Total | Reversal expected in the following twelve months | Reversal expected after twelve months | Total | ||||||||||||||||||
| Cumbra Peru S.A. Consolidado | ||||||||||||||||||||||||
| Aenza S.A.A. | ||||||||||||||||||||||||
| Viva Negocio Inmobiliario S.A.C. | ||||||||||||||||||||||||
| Red Vial 5 S.A. | ||||||||||||||||||||||||
| Others | ||||||||||||||||||||||||
| Total deferred tax asset | ||||||||||||||||||||||||
| 2022 | 2023 | |||||||||||||||||||||||
| Deferred tax liability | Reversal expected in the following twelve months | Reversal expected after twelve months | Total | Reversal expected in the following twelve months | Reversal expected after twelve months | Total | ||||||||||||||||||
| Tren Urbano de Lima S.A. | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Unna Energia S.A. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Cumbra Peru S.A. Consolidado | ( | ) | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||
| Total deferred tax liability | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| (c) |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Balance at January, 1 | ||||||||||||||
| Debit (credit) to income statement | 28 | ( | ) | ( | ) | |||||||||
| Discontinued operations | ( | ) | ||||||||||||
| Reclassification to current income tax | ( | ) | ||||||||||||
| Other movements | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at December, 31 | ||||||||||||||
| 24. | Revenue From Contracts with Customers |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Construction activities | ||||||||||||
| Services provided | ||||||||||||
| Sale of real estate and goods | ||||||||||||
| Revenue from contracts with customers | ||||||||||||
F-109
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| A. |
| For the year ended December 31, | Engineering and construction | Energy | Infrastructure | Real estate | Parent Company operations | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In thousands of soles | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Primary geographical markets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Peru | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Chile | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Colombia | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Major products/ service lines | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction activities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Engineering services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Oil and gas extraction, storage and dispatching services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transportation services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Road concession services | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Water treatment service | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property rental | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Parent company and other entities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of real estate and lots | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of oil and gas | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transferred at a point in time | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transferred over time | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from contracts with customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
F-110
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| B. |
| In thousands of soles | Note | 2022 | 2023 | |||||||
| Receivables | 10.a | |||||||||
| Unbilled receivables | 10.b y c | |||||||||
| Guarantee deposits | 12.b | |||||||||
| Advances received from customers | 20.a | ( | ) | ( | ) | |||||
Contract assets refer primarily to rights to consideration for work performed but not billed at the reporting date.
Contract liabilities relate primarily to advance consideration received from customers for which revenue is recognized over time.
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Balance at January, 1 | ||||||||||||
| Advances received from customers | ||||||||||||
| Compensation of customer advances | ( | ) | ( | ) | ( | ) | ||||||
| Balance | ||||||||||||
Revenue from contract liabilities recognized as
of December 31, 2023 is S/
| C. | The composition of the portfolio of projects pending to be executed (“backlog”) refers to
the expected future income from signed contracts. |
| Annual Backlog | ||||||||||||||||
| In thousands of soles | 2024 | 2025 | 2026+ | Total | ||||||||||||
| Engineering and Construction | ||||||||||||||||
| Infrastructure | ||||||||||||||||
| Real estate | ||||||||||||||||
| Intercompany eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
F-111
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 25. | Costs and Expenses by Nature |
| 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||
| In thousands of soles | Note | Cost of goods and services | Administrative expenses | Total | Cost of goods and services | Administrative expenses | Total | Cost of goods and services | Administrative expenses | Total | ||||||||||||||||||||||||||||
| Salaries, wages and fringe benefits (i) | ||||||||||||||||||||||||||||||||||||||
| Services provided by third-parties | ||||||||||||||||||||||||||||||||||||||
| Purchase of goods | ||||||||||||||||||||||||||||||||||||||
| Other management charges (ii) | ||||||||||||||||||||||||||||||||||||||
| Amortization | 16 | |||||||||||||||||||||||||||||||||||||
| Depreciation (iii) | 15 | |||||||||||||||||||||||||||||||||||||
| Impairment of accounts receivable (iv) | ||||||||||||||||||||||||||||||||||||||
| Taxes | ||||||||||||||||||||||||||||||||||||||
| Impairment of plant and equipment | ||||||||||||||||||||||||||||||||||||||
| Impairment of inventory | ||||||||||||||||||||||||||||||||||||||
F-112
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (i) |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Salaries and wages (i.1) | ||||||||||||
| Statutory gratification | ||||||||||||
| Social contributions | ||||||||||||
| Employee’s severance indemnities | ||||||||||||
| Vacations | ||||||||||||
| Workers’ profit sharing (i.2) | ||||||||||||
| Indemnities Payable | ||||||||||||
| Per diem | ||||||||||||
| Other | ||||||||||||
| Medical Insurance | ||||||||||||
| Medical examinations and psychological evaluation | ||||||||||||
| Training | ||||||||||||
| Other | ||||||||||||
| (i.1) |
| (i.2) |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Cost of sales of goods and services | ||||||||||||
| Administrative expenses | ||||||||||||
| (ii) |
The increase in
2022 of S/
| (iii) |
| Cost of sales and services | Administrative expenses | |||||||||||||||||||||||||
| In thousands of soles | Note | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | |||||||||||||||||||
| Property, plant and equipment | 15.B | |||||||||||||||||||||||||
| Right-of-use assets | 15.C | |||||||||||||||||||||||||
| Investment property | 15.A | |||||||||||||||||||||||||
F-113
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| (iv) |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Trade accounts receivables | 10(d) | |||||||||||||
| Other accounts receivable | 12(f) | |||||||||||||
| Accounts receivable from related parties and joint operators | ||||||||||||||
| 26. | Finance Income and Expenses – Interest for Present Value of Financial Assets or Liabilities |
| A. | Finance Income and Expenses |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Financial income: | ||||||||||||
| Interest on short-term bank deposits | ||||||||||||
Commercial interests | ||||||||||||
| Interest on loans to third parties | ||||||||||||
| Other | ||||||||||||
| Financial expenses: | ||||||||||||
| Interest expense on: | ||||||||||||
| - Bank loans | ||||||||||||
| - Bonds | ||||||||||||
| - Loans from third parties | ||||||||||||
| - Financial lease right-of-use | ||||||||||||
| - Financial lease | ||||||||||||
| Commissions and collaterals | ||||||||||||
| Interest from Tax Administration | ||||||||||||
| Exchange difference loss, net | ||||||||||||
| Factoring expenses | ||||||||||||
| Other financial expenses | ||||||||||||
| B. |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Interest income for present value of financial asset or liability (a) | ||||||||||||
| Interest expenses for present value of financial asset or liability (b) | ( | ) | ( | ) | ( | ) | ||||||
| ( | ) | ( | ) | |||||||||
| (a) | Mainly corresponds to: |
| i. | In 2023, adjustment to present value of the account receivable of Viva Negocio Inmobiliario S.A.C. to
the Ministerio de Vivienda, Construcción y Saneamiento related to the Ancon Project, for S/ |
| ii. | In 2023, adjustment to the present value of the BCI loan in Inversiones en Autopistas S.A. for S/ |
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| (b) | Mainly correspond to: |
| i. | In 2023, adjustment to the present value of the closure provision for S/ |
| ii. | In 2022, adjustment to the present value of the account receivable from Gasoducto Sur Peruano S.A. for
S/ |
| iii. | In 2022, due to the adjustment to the present value of the BCI loan in Inversiones en Autopistas S.A.
for S/ |
| 27. | Other Income and Expenses |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Other income: | ||||||||||||
| Insurance compensation | ||||||||||||
| Sale of assets | ||||||||||||
| Recovery of provisions and impairments | ||||||||||||
| Penalty income | ||||||||||||
| Supplier debt forgiveness | ||||||||||||
| Change in contract of the call option (a) | ||||||||||||
| Fee adjustments for right of use | ||||||||||||
| Other | ||||||||||||
| Other expenses: | ||||||||||||
| Net cost of fixed assets disposal | ||||||||||||
| Administrative sanctions and legal processes (b) | ||||||||||||
| Civil compensation recognized from the Agreement (note 21.a) | ||||||||||||
| Disposal of property, plant and equipment | ||||||||||||
| Asset impairment (c) | ||||||||||||
| Renegotiation of contract with suppliers | ||||||||||||
| Valuation of well abandonment | ||||||||||||
| Other | ||||||||||||
| Other income and expenses | ( | ) | ( | ) | ||||||||
| (a) |
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| (b) |
As of December 31,
2022, mainly corresponds to: i) Penalty imposed to Cumbra Peru by INDECOPI´s Technical Secretariat for S/
| (c) |
| (d) | As of December 31, 2023, corresponds to impairment of other accounts receivable of Viva Negocio Inmobiliario
S.A.C. for S/ |
As of December 31, 2022, corresponds
to the impairment of investments of AENZA S.A.A. for S/
| 28. | Tax Situation |
| A. | According to current provisions legally in force for Peru, Chile, and Colombia, each company of the Corporation is individually subject to the applicable taxes. The Management considers that it has calculated the income tax base according to the current tax provisions legally in force for every country. |
The Company and subsidiaries are subject
to Peruvian tax regime. As of December 31, 2022 and 2023, the Corporate Income Tax rate in Peru is calculated on the basis of the net
taxable income determined by the Company at a rate of
| B. | In accordance with current Peruvian tax legislation, non-domiciled individuals only pay taxes for its
Peruvian source income. Thus, in general terms, revenues obtained by non-domiciled individuals from the services rendered in the country
shall be subject to a |
Concerning the technical assistance
or digital services rendered by non-domiciled individuals to domiciled individuals, regardless of the place where the service is rendered,
they shall be subject to a
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| C. | Changes in the Income Tax Law in Colombia |
Since 2021, several regulations have been published regarding income tax applicable to subsidiaries domiciled in Colombia:
| a) | Law 2155 of Social Investment, whose amendments are effective as of 2022. |
| ■ | Increase of the income tax rate for legal entities
to |
| ■ | Discount of the Industry and Trade Tax (ICA)
of |
| ■ | Tax standardization: this tax is created as an
additional tax on income, being the generating fact the omission of assets or declaring nonexistent liabilities. The rate of this new
tax will be |
| ■ | Audit benefit: the term for the DIAN (Colombian tax authorities) to examine the years 2022 and 2023 income tax returns is extended, being the definitive terms 6 and 12 months. This benefit does not apply to companies with a tax of less than 71 UVT (tax value unit) or that have tax benefits due to their location in a specific geographical area. |
| b) | Law 2277 of Tax Reform for Equality and Social Justice, whose changes are in force since 2023. |
| ■ | New Minimum Tax The taxpayer and/or the business
group to which it belongs must calculate an effective rate (adjusted income tax/debugged profit) which may not be less than |
| ■ | Limit of |
| ■ | For foreign companies and entities and non-domiciled
individuals, the withholding rate increases for dividends from profits that have been considered as revenue not constituting income or
occasional gain. In this case, the withholding rate would be |
| ■ | The occasional income tax rate is set at |
| D. | Tax Loss carryforward |
In Peru the tax loss regime regulated by Section 50° of the Income Tax Law establishes two systems for offsetting tax losses:
Offsetting the loss with the net corporate income obtained during the four years following the period of its generation, year after year, until the amount disappears (A System). The uncompensated balance after such term may not be offset in the following periods.
Offsetting the loss
with
By means of Legislative Decree 1481, published on May 8, 2020, exceptionally, the loss carryforward period under System A of loss offsetting, only for the total net corporate loss of Peruvian source obtained in the taxable year 2020, will be five (5) years.
In Chile, tax losses are set off against future taxable income with no expiration limit.
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| Tax loss | ||||||||||||||||||||
| Tax | application | Estimate on Application | Statute of | |||||||||||||||||
| loss | method | 2024 | 2025 | Forward | limitations | |||||||||||||||
| Cumbra Peru S.A. | ||||||||||||||||||||
| Vial y Vives - DSD S.A. | ||||||||||||||||||||
| AENZA S.A.A. | ||||||||||||||||||||
| Transportadora de Gas Natural Comprimido Andino S.A.C. | ||||||||||||||||||||
| Carretera Andina del Sur S.A.C. | ||||||||||||||||||||
| Consorcio Vial del Sur | ||||||||||||||||||||
| Unna Energia S.A. | ||||||||||||||||||||
| E. |
| In thousands of soles | Note | 2021 | 2022 | 2023 | ||||||||||
| Current income tax | ||||||||||||||
| Deferred income tax | 23 | ( | ) | |||||||||||
| Income tax | ||||||||||||||
| F. |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Profit (Loss) before income tax | ( | ) | ( | ) | ||||||||
| Income tax by applying local applicable tax rates on profit generated in the respective countries | ( | ) | ( | ) | ||||||||
| Tax effect on: | ||||||||||||
| - Non-deductible expenses | ||||||||||||
| - Change in prior years estimations | ||||||||||||
| - Unrecognized deferred income tax asset | ||||||||||||
| - Provision of tax contingencies | ||||||||||||
| - Equity method (profit) loss | ( | ) | ||||||||||
| - Non-taxable income | ( | ) | ( | ) | ( | ) | ||||||
| - Minimum tax | ||||||||||||
| - Other | ( | ) | ||||||||||
| Income tax | ||||||||||||
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| G. | The theoretical tax disclosed results from applying the income tax rate in accordance with the tax legislation
of the country where each company that is part of the Corporation is domiciled. In this regard, companies domiciled in Peru, Chile, and
Colombia applied in 2023 and 2022 income tax rates of |
| Profit/Loss | ||||||||||||
| Applicable | before | |||||||||||
| Tax | Income | Income | ||||||||||
| Rates | Tax | Tax | ||||||||||
| In thousands of soles | (A) | (B) | (A)*(B) | |||||||||
| Country | ||||||||||||
| 2021 | ||||||||||||
| Peru | % | ( | ) | ( | ) | |||||||
| Peru - Red Vial 5 S.A. | % | |||||||||||
| Peru - Tren Urbano de Lima S.A. | % | |||||||||||
| Peru - Via Expresa Sur S.A. | % | ( | ) | ( | ) | |||||||
| Peru - Unna Energia S.A. | % | |||||||||||
| Chile | % | ( | ) | ( | ) | |||||||
| Colombia | % | |||||||||||
| Bolivia | % | |||||||||||
| Mexico | % | ( | ) | ( | ) | |||||||
| Unrealized gains | ( | ) | ( | ) | ||||||||
| ( | ) | ( | ) | |||||||||
| Profit/Loss | ||||||||||||
| Applicable | before | |||||||||||
| Tax | Income | Income | ||||||||||
| Rates | Tax | Tax | ||||||||||
| In thousands of soles | (A) | (B) | (A)*(B) | |||||||||
| Country | ||||||||||||
| 2022 | ||||||||||||
| Peru | % | ( | ) | ( | ) | |||||||
| Peru - Red Vial 5 S.A. | % | |||||||||||
| Peru - Tren Urbano de Lima S.A. | % | |||||||||||
| Peru - Via Expresa Sur S.A. | % | ( | ) | ( | ) | |||||||
| Peru - Unna Energia S.A. | % | |||||||||||
| Chile | % | ( | ) | ( | ) | |||||||
| Colombia | % | |||||||||||
| Bolivia | % | ( | ) | ( | ) | |||||||
| Mexico | % | |||||||||||
| Unrealized gains | ( | ) | ( | ) | ||||||||
| ( | ) | ( | ) | |||||||||
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| Profit/Loss | ||||||||||||
| Applicable | before | |||||||||||
| Tax | Income | Income | ||||||||||
| Rates | Tax | Tax | ||||||||||
| In thousands of soles | (A) | (B) | (A)*(B) | |||||||||
| Country | ||||||||||||
| 2023 | ||||||||||||
| Peru | % | |||||||||||
| Peru - Red Vial 5 S.A. | % | |||||||||||
| Peru - Tren Urbano de Lima S.A. | % | |||||||||||
| Peru - Via Expresa Sur S.A. | % | ( | ) | ( | ) | |||||||
| Peru - Unna Energia S.A. | % | |||||||||||
| Chile | % | ( | ) | ( | ) | |||||||
| Colombia | % | |||||||||||
| Mexico | % | ( | ) | ( | ) | |||||||
| Unrealized gains | ||||||||||||
| H. | Income Tax Assessment |
Peruvian Tax Authorities are entitled to examine and, if applicable, to correct the income tax calculated by the Company within the four years following the year of tax return filing, counted as from January 1 of the year after the filling of the corresponding tax return (years open to audit). Tax returns for years 2019 through 2023 are open for examination. Management considers that no significant liabilities will arise as a result of these income tax assessments. In addition, tax returns for years 2020 through 2023 are pending examination by the Chilean tax authorities, who are entitled to conduct examinations within a period of three years from the date of presentation of the respective tax returns. Likewise, in Colombia, tax returns for years 2021, 2022, and 2023 are pending examination by the Colombian tax authorities, who are entitled to conduct examinations within a period of two ears from the date of presentation of the respective tax return.
In addition, the declaration of National Emergency issued by government by means of Executive Order 044-2020-PCM and its amendments, suspended the term for limitations of the Tax Administration’s auditing from March 16, 2020 to June 10, 2020, i.e., for a period of eighty seven (87) calendar days.
Due to possible varied interpretations of the current legal regulations by the Tax Authorities, it is not possible to determine, to date, whether a future tax audit will result or not in liabilities for the Company; therefore, any difference that might arise from eventual tax audits would be applied to profit or loss for the period in which it is determined.
| I. | Uncertainty over income tax treatments |
The Corporation has performed an assessment of uncertain tax treatment positions in accordance with IFRIC 23 and determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments will be accepted by the tax authorities. The Interpretation had no impact on the Corporation’s consolidated financial statements as of December 31, 2021, 2022 and 2023.
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| J. | Temporary Tax on Net Assets (ITAN) |
It is applicable to the Corporate
Income, whose taxable base is constituted by the adjusted net assets at the end of the fiscal year prior to payment, after deducting depreciation,
amortization, legal reserve, and specific provisions for credit risk. The tax rate is
| K. | Tax on financial transactions |
Tax on Financial Transactions (ITF)
for the periods 2022 and 2023 was fixed at the rate of
| L. | Transfer pricing |
For Income Tax determination purposes, transfer pricing for transactions carried out with related parties and with companies domiciled in territories with low or null taxation, shall be supported with documentation and information about the valuation methods used, and the criteria considered for pricing. Until fiscal year 2016, it was mandatory to submit a Transfer Pricing Sworn Statement and a Technical Study.
By means of Legislative Decree 1312, published on December 31, 2016 and effective January 1, 2017, the following formal obligations were established to replace the former ones: (i) presentation of a Local File (subject to materialization limits); (ii) presentation of a Master File (subject to materialization limits), and (iii) presentation of a Country-by-Country Reporting. The presentation of the Master File and the Country-by-country reporting will become obligatory from 2018 onwards.
In addition, the
Decree 1312 also established that intra-group services with low added value shall not have a margin greater than
Based on the analysis of operations of the Company, the Management and its legal advisors consider that, as a consequence of the application of these provisions, no material contingencies will arise as of December 31, 2022 and 2023.
| M. |
| ■ | Viva Negocio Inmobiliario S.A.C. | S/ | |
| ■ | Tren Urbano de Lima S.A. | S/ | |
| ■ | Aenza Servicios Corporativos S.A.C. | S/ |
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| N. | Major amendments to Peruvian tax laws effective from January 1, 2021 |
| i. | Accrual accounting concept |
Legislative Decree 1425 introduced the definition of “legal accrual” for income tax purposes, applicable from 2019, stating that: a) income from transfer of goods occurs when i) control has been transferred (in accordance with IFRS 15); or ii) risk has been transferred to the acquirer (Risk Theory set out in the Civil Code), whichever occurs first; and b) income from service rendering occurs when realization level of the rendered service has been established.
The new legal accrual concept is applicable to lessees for determining the tax treatment of the expense associated with lease agreements regulated by IFRS 16 (e.g. operating leases for tax purposes).
The concept serving as comment will not be applicable for those entities accruing income or expenses for Income Tax in accordance with tax provisions establishing a special (sectorial) regime of accrual.
| ii. | Deduction of expenses or costs incurred in transactions with non-domiciled parties |
Legislative Decree 1369 requires that costs and/or expenses (including outbound interest) incurred with non-domiciled individuals must be paid effectively to be deducted in the year they were incurred. Otherwise, their impact on the determination of net income will be deferred to the year in which they are actually paid and the corresponding withholding will be applied.
This regulation eliminated the obligation to pay the amount equivalent to the withholding on the amount recorded as cost and/or expense.
| iii. | Indirect credit |
As from January 1, 2019, under certain requirements, domiciled entities receiving foreign inbound dividends may deduct as direct credit the income tax that would have been levied on the foreign dividends and the corporate income tax (indirect loan) paid by the tier 1 and tier 2 non-domiciled entity (provided they are in the same jurisdiction) that would have been applied to distribute the dividends from abroad.
| iv. | Measures to implement the General Anti-avoidance Rule provided in the regulation XVI of Tax Code |
Legislative Decree 1422 set up the procedure to implement the General Anti-avoidance Rule, mainly stating that: (i) it is applicable only in final audit procedures in which acts, events or situations that occurred since July 19, 2012, are reviewed; (ii) it is applicable only if there is a favorable opinion from a review committee composed of Tax Authorities’ officers (said opinion is not appealable); and (iv) final audit procedures, in which the General Anti-avoidance Rule is applicable, are not subject to the one (1) year term to request information from the audited parties.
On May 6, 2019, Executive Order 145-2019-EF was published in the Official Gazette El Peruano. This Decree approves the substantive and formal parameters for the application of the general anti-avoidance rule contained in Rule XVI of the Tax Code, thus, complying with the requirement to release the suspension established by Law 30230 for the application of said rule. Likewise, SUNAT Audit Procedure Regulations have been adapted for this purpose.
By means of Resolution 000184-2021/SUNAT, published on December 13, 2021, the members of the Review Committee of SUNAT referred to in Article 62-C of the Sole Ordered Text of the Tax Code were appointed, which states that when applying the Anti-avoidance Rule in an audit procedure, a report must be sent together with the audit file to the Review Committee.
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| v. | Joint and several liability of legal representatives and Directors |
Legislative Decree 1422 establishes that from September 14, 2018, when an audited individual is subject to the General Anti-Avoidance Rule, there is joint and several liability of legal representatives due to fraud, gross negligence, or misuse of powers, unless proven otherwise. The aforementioned joint and several liability shall be attributed to said representatives provided that they collaborated in the design, approval or execution of the acts, situations or business relationships with an elusive purpose.
This regulation also applies to the members of the Board of Directors, indicating that they shall establish a tax strategy for the companies in which they act as directors, having to decide whether or not to approve the acts, situations or business relationships to be carried out within the framework of tax planning; they shall not delegate such responsibility.
Lastly, the members of the domiciled companies’ Board of Directors were granted a term, with maturity on March 29, 2019, to verify or modify the acts, situations or business relationships carried out within the tax planning and implemented as of September 14, 2018, that continue having tax effect to date.
Considering the maximum term established for compliance with said formal obligation, the aforementioned joint and several liability attributable to legal representatives and directors, and the absence of a definition of ‘tax planning’, it will be crucial to review any act, situation or economic relation that has: (i) increased tax allocation; and/or (ii) generated a lower payment of taxes for the aforementioned periods, in order to avoid the attribution of joint and several liability, both administratively and punitively, depending on the supervisory agent criterion. The latter, in case the company to be audited by the Tax Authorities is subject to the General Anti-Avoidance Rule.
| vi. | Information related to ultimate beneficiaries |
In line with the regulations to strengthen the fight against tax evasion and avoidance, as well as against money laundering and terrorism financing, as from August 3, 2018, provisions introduced by Legislative Decree 1372 are currently in force. The aforementioned decree requires the presentation of information related to ultimate beneficiaries to the competent authorities by means of a sworn statement of the ultimate beneficiaries. Said statement shall disclose the names of the natural persons that effectively retain ownership or control. Accordingly, it is mandatory to report the following information: (i) identification of the ultimate beneficiary; (ii) chain of title with its respective supporting documents; and (iii) identification of third parties that have said information, if applicable. It is also noted that the information related to the identification of the ultimate beneficiaries of legal persons and legal entities that will be provided to the competent authorities within the framework of these rules does not constitute a violation of professional secrecy nor is it subject to the restrictions on disclosure of information derived from confidentiality imposed by contract or by any legal or regulatory provision.
Likewise, by means of Superintendence Resolution 041-2022/SUNAT, effective as of March 25, 2022, the new parties obliged to file the sworn statement of the ultimate beneficiaries for fiscal years 2022 and 2023 (provided that they have not filed any in December 2019) were established.
The legal entities were obliged to file the sworn statement of the ultimate beneficiaries in accordance with the maturity schedule for monthly obligations for the period December 2022; however, by means of Superintendence Resolution 000278-2022/SUNAT, such due date was postponed until the period December 2023.
It should be taken into consideration that, if the sworn informative statement containing the information related to the ultimate beneficiaries is not filed, the legal representatives of the entity that failed to file such statement will be jointly and severally liable.
| vii. | Indirect Transfer of Shares |
Since January 1, 2019, an anti-avoidance measure has been applied to prevent the split of operations, which allows indirect transfer of shares of companies domiciled in Peru.
It
is indicated that in order to establish whether in a twelve-month period the transfer of
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Notes to the Consolidated Financial Statements
In
addition, regardless of compliance with the provisions of the Income Tax Law, an indirect taxable transfer shall always be established
when, over any period of 12 months, the total amount of transferred shares of the Peruvian legal person is equal to or greater than forty
thousand (
Likewise, when the transferor is a non-domiciled legal person that has a branch office or any permanent establishment in Peru with allocated equity, the latter is considered a jointly liable party. Thus, the latter is required to provide information, among other, regarding the transferred shares or interest of the non-domiciled legal person.
| viii. | Thin Capitalization |
Beginning
January 1, 2021, finance cost will be deductible up to
Executive Order 402-2021, published on December 30, effective as of December 31, 2021, amended the Income Tax Law Regulation that regulates the calculation of the tax EBITDA for purposes of the debt interest limit.
For fiscal years 2019 and 2020 the financial expense generated by indebtedness both between independent and related parties is subject to the thin capitalization limit of (3:1 Debt/Equity Ratio) calculated at the end of the previous fiscal year.
| ix. | Other relevant changes |
Within the framework of the delegation of powers to legislate on tax, fiscal, financial and economic reactivation matters, given to the Executive Branch (Law 31380), on December 30, 2021, the first tax regulations were published, among which the tax benefits approved for the Aquaculture and Forestry sector, the standardization of the cost for access to tax stability and the extension of the VAT exemptions stand out.
They extend the validity of some exonerations and tax benefits, specifically the following:
| ■ | The exemptions contained in Appendices I and II of the Sales Tax Law were extended until December 31, 2025. Consequently, the sale of staple foods and basic services such as public transportation, among others, will not be levied with sales tax. Link to the regulation of comment: Law 31651. |
| ■ | The issuance of electronic money will not be levied with sales tax until December 31, 2024. Link to the regulation of comment: Legislative Decree 1519. |
| ■ | The refund of taxes levied on acquisitions with donations from abroad and imports from diplomatic missions is allowed until December 31, 2024: Link to the regulation of comment: Legislative Decree 1519. |
In addition, Executive Order 1516, published on December 30, 2021, and in force as from December 31, 2021, established the standardization of the cost for access to the stability provided for in the Legal Stability Agreements under Legislative Decrees 662 and 757. Accordingly, such decree has modified Article 1 of Law 27342 that regulates such agreements. Therefore, receiving companies signing with the government stabilizes the Income Tax to be applied according to the regulations in force at the time of the subscription of the corresponding agreement, being applicable the current rate referred to in the first paragraph of Article 55 of the Income Tax Law at that time plus 2 (two) percentage points.
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Likewise, Legislative Decree 1529, effective beginning on April 1, 2022, amended Law 28194 “Law for the Fight against Evasion and for the Formalization of the Economy”, regarding the cases in which means of payment must be used; the amount from which it is obligatory to use means of payment, and the obligation to report to the Tax Authority about payments made to third parties other than the creditor.
| 29. | Other comprehensive Income |
| Exchange difference | ||||||||||||||||
| Foreign | Increase in | from net | ||||||||||||||
| currency | fair value of | investment | ||||||||||||||
| translations | available-for | in a foreign | ||||||||||||||
| adjustment | sale assets | operation | Total | |||||||||||||
| As of January 1, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||
| (Debit) credit for the year | ( | ) | ( | ) | ( | ) | ||||||||||
| As of December 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||
| (Debit) credit for the year | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| As of December 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||
| Credit (debit) for the year | ( | ) | ||||||||||||||
| As of December 31, 2023 | ( | ) | ||||||||||||||
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Owners of the Company | ( | ) | ( | ) | ||||||||
| Non-controlling interest | ( | ) | ||||||||||
| Total value in OCI | ( | ) | ( | ) | ||||||||
| 30. | Contingencies, Commitments, and Warranties |
In
the opinion of Management and its legal advisors, the provisions registered mainly for lawsuits (civil, tax, labor claims, administrative
proceedings, and contentious-administrative proceedings) are sufficient to cover the results of these probable contingencies (note 21),
leaving as possible contingencies an amount of S/
| A. | Tax contingencies |
As
of December 31, 2023, the Company considers that the maximum exposure for tax contingencies of the Corporate amounts to S/
| i) | Appeal Process before the Tax Court totaling S/ |
| ii) | Claim process before SUNAT for S/ |
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Notes to the Consolidated Financial Statements
| iii) | Claim proceeding before the Judicial Power for S/ |
As of December 31, 2022 and 2023, in the opinion of the Corporation’s Management, all of the aforementioned processes will be favorable considering their characteristics and the evaluation of its legal advisors.
| B. | Other contingencies |
As
of December 31, 2023, the Company considers that the maximum exposure for other contingencies of the Corporation amounts to S/
| i) | Labor lawsuits for S/ |
| ii) | Civil lawsuits, corresponding mainly to indemnities for damages, contract terminations and obligations to give a sum of money amounting to S/ |
| iii) | Administrative lawsuits amounting to S/ |
| iv) | Administrative proceedings amounting to S/ |
| C. | Letters of guarantee and Guarantors |
As
of December 31, 2023, the Corporation has different letters of guarantee and guarantors in force in various financial entities ensuring
operations for US$
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Notes to the Consolidated Financial Statements
| 31. | Non-controlling Interest |
As of December 31, 2022
| In thousands of soles | VIVA Negocio Inmobiliario S.A.C. and subsidiaries | Red Vial 5 S.A. | Tren Urbano de Lima S.A. | Cumbra Ingenieria S.A. and subsidiaries | Unna Energia S.A. | Cumbra Peru S.A. and subsidiaries | Promotora Larcomar S.A. | Other individually immaterial subsidiaries | Intra-group eliminations | Total | ||||||||||||||||||||||||||||||
| Percentage of non-controlling interest | % | % | % | % | % | % | % | - | - | - | ||||||||||||||||||||||||||||||
| Current assets | - | - | - | |||||||||||||||||||||||||||||||||||||
| Non-current assets | - | - | - | |||||||||||||||||||||||||||||||||||||
| Current liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||
| Non-current liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||
| Net assets | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net assets attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Revenues | - | - | - | |||||||||||||||||||||||||||||||||||||
| Profit (los) of the year | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||
| Other comprehensive income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Total comprehensive income for the year | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||
| Profit (loss) of the year, allocated to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income, allocated to non-controlling interest | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Cash flows from operating activities | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||
| Cash flows from investment activities | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||
| Cash flows from financing activities | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||
F-127
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
As of December 31, 2023
| In thousands of soles | VIVA Negocio Inmobiliario S.A.C. and subsidiaries | Red Vial 5 S.A. | Tren Urbano de Lima S.A. | Cumbra Ingenieria S.A. and subsidiaries | Unna Energia S.A. | Cumbra Peru S.A. and subsidiaries | Promotora Larcomar S.A. | Other individually immaterial subsidiaries | Intra-group eliminations | Total | ||||||||||||||||||||||||||||||
| Percentage of non-controlling interest | % | % | % | % | % | % | % | - | - | - | ||||||||||||||||||||||||||||||
| Current assets | - | - | - | |||||||||||||||||||||||||||||||||||||
| Non-current assets | - | - | - | |||||||||||||||||||||||||||||||||||||
| Current liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||
| Non-current liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||
| Net assets | ||||||||||||||||||||||||||||||||||||||||
| Net assets attributable to non-controlling interest | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Revenues | - | - | - | |||||||||||||||||||||||||||||||||||||
| Profit (loss) of the year | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Total comprehensive income for the year | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Profit (loss) of the year, allocated to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income, allocated to non-controlling interest | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Cash flows from operating activities | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Cash flows from investment activities | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||
| Cash flows from financing activities | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||
F-128
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 32. | Dividends |
In compliance with certain covenants, the Company will not pay dividends, except for the transactions with non-controlling interests described in note 34. Certain debt or other contractual obligations may restrict the ability to pay dividends in the future.
Additionally,
the Agreement does not permit the distribution of dividends until
For
the period ended December 31, 2023, the subsidiaries of the Corporation have declared dividends to their non-controlling interest parties
of S/
| 33. | Profit (Loss) per Share |
The basic profit (loss) per common share has been calculated by dividing the profit (loss) of the year attributable to the Corporate’s common shareholders by the weighted average of the number of common shares outstanding during that year.
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||||
| Profit (loss) attributable to owners of the Company during the year | ( | ) | ( | ) | ||||||||||
| Weighted average number of shares in issue at S/ 1.00 each, as of December 31, | (*) | |||||||||||||
| Basic profit (loss) per share (in S/) | (**) | ( | ) | ( | ) | |||||||||
| Weighted average number of shares (diluted) in issue at S/ 1.00 each, as of December 31, | (*) | |||||||||||||
| Diluted profit (loss) per share (in S/) | (**) | ( | ) | ( | ) | |||||||||
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||||
| Profit (loss) from continuing operations attributable to owners of the Company during the year | ( | ) | ( | ) | ||||||||||
| Weighted average number of shares in issue at S/ 1.00 each, as of December 31, | (*) | |||||||||||||
| Basic profit (loss) per share (in S/) | (**) | ( | ) | ( | ) | |||||||||
| Weighted average number of shares (diluted) in issue at S/ 1.00 each, as of December 31, | (*) | |||||||||||||
| Diluted profit (loss) per share (in S/) | (**) | ( | ) | ( | ) | |||||||||
| (*) |
| (**) |
F-129
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 34. | Transactions with Non-controlling Interest |
| A. | Contributions (returns) from non-controlling shareholders |
| In thousands of soles | 2021 | 2022 | 2023 | |||||||||
| Contributions received | ||||||||||||
| Returns of contributions | ( | ) | ( | ) | ( | ) | ||||||
| Decrease in equity of non-controlling parties | ( | ) | ( | ) | ( | ) | ||||||
| 35. | Reclassification of Operations of the Subsidiary Adexus S.A. as Discontinued Operations |
On
November 19, 2019, Adexus S.A. filed a petition for bankruptcy reorganization under Chilean Law 20.720 before the Chilean courts. As
a result, the Company impaired the total investment in said subsidiary at the end of 2019.
On
December 27, 2021, the Company entered into a purchase and sale agreement for its entire interest (representing
| In thousands of soles | 2021 | |||
| Revenues | ||||
| Operating costs | ( | ) | ||
| Gross profit | ||||
| Administrative expenses | ( | ) | ||
| Other income and expenses, net | ||||
| Operating loss | ( | ) | ||
| Financial expenses | ( | ) | ||
| Financial income | ||||
| Loss before income tax | ( | ) | ||
| Income tax | ||||
| Loss from discontinued operations | ( | ) | ||
| Net effect in consolidated | ( | ) | ||
| Cash flows relating to the discontinued operations are as follows: | ||||
| Operating cash flows | ||||
| Investing cash flows | ( | ) | ||
| Financing cash flows | ||||
| Net increase generated in subsidiary | ||||
F-130
AENZA S.A.A. and Subsidiaries
Notes to the Consolidated Financial Statements
| 36. | Events After the Consolidated Statements of Financial Position |
Between January 1, 2024 and the date of issuance of this report, the following significant events have occurred:
| 1. | Corporate Reorganization plan |
On February 7, 2024, the General Shareholders’ Meeting of AENZA S.A.A. approved the Corporate Reorganization Plan, according to which the new structure of the Group will be formed by two new holding companies, one that groups the engineering and construction businesses and the other that groups the infrastructure and energy businesses; maintaining Viva Negocio Inmobiliario S.A.C. as the vehicle for the real estate development business.
In this regard, the following non-monetary capital contributions agreements were made:
| i) | In favor of Unna Infraestructura S.A.C., consisting of the shares owned by the Company representing the capital of: Tren Urbano Lima S.A., Red Vial 5 S.A., Concesionaria La Chira S.A., Inversiones en Autopistas S.A., Carretera Andina del Sur S.A.C., Concesionaria Via Expresa Sur S.A.C., Carretera Sierra Piura S.A.C., Operadores de Infraestructura S.A.C., and Agenera S.A.C. |
| ii) | In favor of Inversiones Ingenieria y Construccion S.A.C., consisting of the shares owned by the Company representing the capital of: Cumbra Peru S.A. and Cumbra Ingenieria S.A. |
| iii) | In favor of UNNA S.A.C., consisting of the shares owned by the Company representing the capital of: Unna Infraestructura S.A.C. and Unna Energia S.A. |
Additionally, the delegation of powers to the Board of Directors to determine and fix the accounting valuation of the shares that will be the object of the non-monetary contributions, based on a valuation report to be prepared by Larrain Vial within 90 calendar days, as well as to determine all other conditions and terms for the realization of the non-monetary contributions.
| 2. | Tren Urbano de Lima S.A. - Arbitration Request |
Our
subsidiary Tren Urbano de Lima S.A. has filed on February 13, 2024, before the General Secretariat of the Arbitration Center of the Chamber of Commerce
of Lima, the Arbitration request against the Peruvian Government, for the amount of S/
| 3. | Issuance of International Bonds |
On April 17, 2024, the Company launched an
offering of new bonds in the international markets in reliance of Rule 144A and Regulation S under the Securities Act. On May 10,
2024, the new bonds were priced for a principal amount of US$
In addition to these events, no additional material facts or events have occurred that would require adjustments or disclosures in the consolidated financial statements as of December 31, 2023.
F-131