As of June 30, 2019 and December 31, 2018
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Empresas Públicas de Medellín E.S.P. y Subsidiarias Interim Condensed Consolidated Financial Statements and Notes June 30, 2019 and December 31, 2018 (Unaudited) Table of contents of notes to the interim condensed consolidated financial statements Note 1. Reporting Entity ..................................................................................................................... 8 Note 2. Significant Accounting Policies ........................................................................................... 9 Note 3. Seasonality ............................................................................................................................ 12 Note 4. Significant Accounting Judgments, Estimates, and Causes of Uncertainty in the Preparation of Financial Statements. .............................................................................. 12 Note 5. Significant Transactions and Other Relevant Aspects During the Period .................. 15 Note 6. Surpluses ............................................................................................................................... 17 Note 7. Property, Plant and Equipment, Net ............................................................................... 17 Note 8. Investment in Subsidiaries ................................................................................................. 23 Note 9. Investment in Associates .................................................................................................... 35 Note 10. Other financial assets ......................................................................................................... 37 Note 11. Cash and Cash Equivalents ................................................................................................. 38 Note 12. Borrowings and Loans ......................................................................................................... 51 Note 13. Provisions, Contingent Liabilities and Contingent Assets ............................................. 62 Note 14. Income ................................................................................................................................. 121 Note 15. Other Income ..................................................................................................................... 122 Note 16. Costs of goods sold and services rendered ................................................................... 123 Note 17. Administrative Expenses and Impairment loss on accounts receivable ................... 124 Note 18. Other Expenses .................................................................................................................. 125 Note 19. Financial Income and Expenses ....................................................................................... 126 Note 20. Net foreign exchange difference .................................................................................... 127 Note 21. Income tax .......................................................................................................................... 128 Note 22. Related Party Disclosures................................................................................................. 129 Note 23. Capital Management ......................................................................................................... 130 Note 24. Measurement of fair value on a recurring and non-recurring basis ......................... 131 Note 25. Operating Segments .......................................................................................................... 137 Note 26. Events after the Reporting Period .................................................................................. 142 Notes to the interim condensed consolidated financial statements of the EPM Group for the periods ended as of June 30, 2019 and December 31, 2018. (In millions of Colombian pesos, except when indicated otherwise) Note 1. Reporting Entity Empresas Públicas de Medellín E.S.P. and subsidiaries (hereinafter, "EPM Group" or “the Group”) is the Holding Company of a multi-latin Enterprise group; which has as of June 30, 2019 and December 31, 2018 a consolidation perimeter made up of 47 companies and a structured entity1, with a presence in the provision of public utilities in Colombia, Chile, El Salvador, Guatemala, Mexico and Panama. EPM is a municipal-order decentralized entity, created in Colombia through Resolution 58 of August 6, 1955 issued by the Administrative Council of Medellín, as an autonomous public institution. It was transformed into an industrial and commercial government company of municipal-order through Resolution 069 of December 10, 1997 of the Medellín Council. Due to its legal status, EPM is endowed with administrative and financial autonomy, and its own equity according to Article 85 of Law 489 of 1998. The capital stock with which the company was constituted and operates, as well as its equity, is of a public nature, being its only owner is the Municipality of Medellín. Its main corporate domicile is located at Carrera 58 No. 42-125 in Medellín, Colombia. It has not established a term of duration. EPM provides residential public utilities of water, sewage, power and combustible gas distribution. It can also provide the domiciliary public utilities of waste management, waste treatment and disposal, as well as the complementary activities related to each and every public utility service above mentioned. The Group provides services in the following business units: − Electricity: it includes Electricity Generation, Electricity Transmission, Electricity Distribution and Commercialization, and Natural Gas Distribution and Commercialization segments. − Water: it includes the Water Supply, Wastewater Management and Solid Waste Management segments. − Others segment: Consisting of the investment vehicles, Distribución Eléctrica Centroamericana II S.A. (DECA II), EPM Capital Mexico S.A. de C.V., EPM Chile S.A., EPM Inversiones S.A., EPM Latam S.A., Inversiones y Proyectos Hidrosur SpA (former Inversiones y Asesorias South Water Services SpA)2, Panama Distribution Group S.A. (PDG). It additionally includes Maxseguros EPM Ltd., captive reinsurer established to negotiate, contract, and provide reinsurance services. − Furthermore, EPM Group participates in the telecommunications business, in which it has significant influence since August 2014, through UNE EPM Telecomunicaciones S.A. and its affiliates: Edatel S.A. E.S.P, Orbitel Servicios Internacionales S.A. (OSI), Cinco Telecom Corporation (CTC) and Colombia 1 Autonomous Equity Social Funding. Under International Financial Reporting Standards (IFRS), it is considered a structured entity part of the consolidation perimeter of the financial statements of the EPM Group. 2 It changed its company name on November 26, 2018, through public deed No. 34.861-2018 of Notary 27 of Santiago de Chile. 8 Notes to the interim condensed consolidated financial statements Movil S.A.; and Inversiones Telco S.A.S. and its affiliate Emtelco S.A.; providing voice, data and Internet utilities, professional services, and data center, among others. The Group main activities are described in Note 25. Operating Segments. The Interim Condensed Consolidated Financial Statements of the Group for the year ended as of December 31, 2018 and for the period ended as of June 30, 2019 were authorized by the Board of Directors to be published on March 26 and on August 13, 2019, respectively. Note 2. Significant Accounting Policies 2.1 Basis for the Preparation of Financial Statements The consolidated condensed interim financial statements have been prepared in accordance with the International Accounting Standard (IAS) 34: Interim Financial Reporting, as adopted in Colombia, following the same accounting policies used in the preparation of the most recent annual Financial Statements of the Group. These consolidated condensed interim financial statements do not include all the information and disclosures normally required for full annual financial statements and must be read in conjunction with the consolidated financial statements of Empresas Públicas de Medellín E.S.P. and subsidiaries for the year ending on December 31, 2018. The presentation of financial statements in conformity with IFRS adopted in Colombia requires making estimates and assumptions that affect the amounts reported and disclosed in the financial statements, without undermining the reliability of the financial information. Actual results may differ from said estimates. Estimates and assumptions are constantly revised. Revision of accounting estimates is recognized for the period in which the estimates are revised if the revision affects such period or in the revision period and future periods, if it affects both the current and the future period. The estimates made by the Management, in applying the IFRS adopted in Colombia, that have a material effect on the financial statements, and those that imply significant judgments for the annual financial statements, are described in greater detail on Note 4. Significant accounting judgments, estimates, and causes of uncertainty in the preparation of financial statements. EPM and each of its subsidiaries present separate or individual financial statements, as applicable, for compliance before the controlling entities and for internal administrative follow-up purposes and provide information to the investors. Assets and liabilities are measured at cost or amortized cost, with the exception