Integrated Annual Report 2020
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INTEGRATED ANNUAL REPORT 2020 Together we create development Version approved by the Virtual Mandatory Annual General Shareholders Meeting held on March 31, 2021 Content 1. Letter from the President 2. We are Ferreycorp 3. Business Area 4. Financial Management | Management Analysis and Discussion on Audited Financial Statements 5. SustainaBle Management 6. Appendices § Appendix 1: General business information § Appendix 2: Capital stock and shareholding structure § Appendix 3: Market information on securities registered in the Public Registry of the Securities Market § Appendix 4: Sustainability § Appendix A: Report on Compliance with the Code of Good Corporate Governance for Peruvian Corporations § Appendix B: Corporate Sustainability Report 2 Statement of Responsibility This document contains true and sufficient information regarding the development of Ferreycorp S.A.A.'s business during the year 2020. Without prejudice to the responsibility of the issuer, the signatories are responsible for its contents in accordance with the applicable legal provisions. Mariela García Figari de FaBBri Patricia Gastelumendi Lukis General Management Corporate Finance Management Miguel Espinosa Rivas Budget and Accounting Management March 31, 2021 - Lima 3 1. Letter from the President (GRI 102-14) I am writing this first letter to the shareholders after my appointment as President of the Board of the company in August. First of all, I would like to thank the Board for their confidence in my election, as well as Mr. Oscar Espinosa Bedoya for his 40 years of management of the organization. His vision as general managing director for 25 years and later as its executive president was decisive for the corporation, leader in capital goods and related services. We also reaffirm our appreciation to the directors who retired in July of last year: Mr. Juan Manuel Peña Roca, who served on the Board for 36 years; Mr. Jorge Ganoza Durant, who served as an independent director for the last three years; and Mr. Carlos Ferreyros Aspíllaga, former vice president of the Board and who has 50 years serving the corporation in different roles, and who remains on Ferreyros Board. The year 2020 was a particularly complex year as it confronted people, societies and organizations around the world with an extreme event: the COVID-19 pandemic. Ferreycorp and its companies felt the onslaught of the pandemic and faced it with seriousness and professionalism, understanding their role and responsibility, first with their employees and their families in all the countries where they operate, and then with their customers, shareholders and society in general. With this Annual Report, we would like to pay tribute to and recognize the more than 6,000 employees of the corporation who worked hard during the year to move the company forward and continue to serve our customers with care. Our country has been severely impacted by COVID-19 and the Ferreycorp family has not been immune to this situation. We deeply regret the losses suffered by our employees and family members. Since March 16, 2020, Ferreycorp and its subsidiaries strictly complied with the mandatory social isolation ordered by the governments of the countries in which it operates, in order to contain the spread of the new coronavirus. In Peru, almost all of the corporation's activities were restricted, including repairs in workshops, dispatches in warehouses and customer service in the organization's branches and headquarters, which resulted in very little commercial activity. Only a minimal fraction of operations was carried out to attend clients with activities exempted by their sector, in those companies and activities that were allowed. All those functions that could be performed remotely, which excludes activities in warehouses, workshops and remote operations, were carried out remotely. In the other countries in which the corporation operates, such as Chile, Guatemala and El Salvador, the restriction for on-site work was less. The first actions of the corporation were aimed at preserving the health of its workers, ensuring compliance with the quarantine, and calling on its employees to comply with the call to #quedateencasa and thus contribute to the control of the pandemic, and to ensure the observance of protocols for employees who did go to their jobs. In this way, the corporation was faithful to its value and priority of protecting the health and integrity of its employees and any participant in its chain value. 4 This was followed by actions related to maintaining a close relationship with clients, obtaining financial resources to guarantee compliance with the company's obligations, preparing protocols for the return of a large number of employees to their positions in May, and securing inventories to continue meeting the needs of the market when it restarts its activities. We are grateful for the trust of our customers, who throughout the year maintained a close relationship with our companies, and allowed us to continue to be part of their projects, sharing their challenges and future needs. The resilience of our clients and their forward-looking optimism allowed us to continue contributing with them in the achievement of their objectives, in an environment of so much uncertainty and challenges. As of May, all employees in activities that are not susceptible to operate under the remote work modality in Peru returned to their jobs, with the commitment that characterizes them. Ferreycorp and its subsidiaries designed detailed preventive and control measures for COVID-19, incorporated into its Workplace Safety Program, which had already been used in the companies that maintained a greater presential operation. Close communication was maintained and campaigns were deployed to inform employees about the adoption of these measures, in order to comply with their usual safety standards. The safety protocols include preventive measures such as permanent evaluation of the risk of virus infection; daily monitoring of health conditions; specific procedures in areas such as workshops, customer service and field service; the use of personal protective equipment; hygiene procedures and distancing in common areas; new routines for personnel transportation and work trips; among others. Thus, with due authorization from the authorities to restart their activities, Ferreycorp's companies in Peru began in May the gradual reestablishment of their physical service processes at their locations; the performance of after-sales support in the field; and the delivery of machines and spare parts, maintaining the emphasis on promoting their digital channels among their clients. The return was executed gradually, not only because of the challenges of relocating all workers to their positions, especially those assigned to mining operations, but also because customers also had to reorganize their operations gradually. After approximately one quarter, 60% of Ferreycorp's employees were already working on-site and the rest, mainly in back office functions, were working remotely or, to a lesser extent, in a hybrid scheme. This proportion remained the same at the end of the year. It should be noted that, despite the restrictions imposed by a very strict quarantine, many key business management processes were maintained and flowed normally thanks to technologies and platforms implemented in previous years. Communications with customers, sending quotations, receiving purchase orders, promoting products, among others, were carried out through various channels such as web pages, e-mail, the webinars, social networks and instant messaging, among others. In the same way, the relationship with factories, the placement of purchase orders to the represented companies, customs clearance, transportation of goods, among others, also flowed normally thanks to the use of digital channels. The situation also served to deploy significant efforts to digitize the training of our technicians and even remote assistance to field personnel from centralized workshops. For on-site operations, a major effort was made to adapt to the different protocols implemented by each of our customers, which included screening, prior quarantines, changes in the frequency of on-call duty, etc., as well as a review of the schedules in our own premises to adapt them to changing rules according to the development of the pandemic. We can say that, once again, the corporation and its companies showed their resilience, their capacity to adapt, the dedication of their leaders and the commitment of all their employees. 5 The recovery in the level of activity was gradual, reaching pre-COVID volumes in the fourth quarter. The effect of the pandemic and the measures adopted by the Government had a significant impact on Peruvian economic activity, as occurred in other countries. In Peru, GDP contracted by 11.5% compared to an average growth of 3% in the previous two years. The GDP of the mining and construction sectors, the most relevant in the corporation's revenues, declined by 14% and 15.6%, respectively. Private investment fell by 20%, while public investment dropped down by 18%, also having an impact on the sectors served by the corporation. In Chile, Guatemala and El Salvador, the GDP reduction was less than in Peru, in the order of 6%, 2% and 9%, respectively. Thus, the corporation's revenues for the year were S/ 4,857 million, 17% below 2019 (S/ 5,858 million), despite the fact that it had minimal operations for two months and faced lower demand for four more months. Sales in the last quarter reached S/ 1,653 million, 13% higher than the average quarterly sales of 2019 (S/ 1,464 million) and above the S/ 805 million recorded during the second quarter 2020, the most affected by the pandemic and quarantine. The sectors that have contributed the most to achieve this result were mining and construction, with a 51% and 21% share of total sales, respectively, which are largely served by Ferreyros. In relation to Ferreyros's services to the open pit mining sector, by the end of the year the hauling fleet had recovered its level of utilization, which totals approximately 600 trucks, 45 shovels, more than 30 drills and more than 300 large auxiliary equipment.