Our Commitment Report Transformation Transparency Transcendence
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INTEGRATED OUR COMMITMENT REPORT TRANSFORMATION TRANSPARENCY TRANSCENDENCE COMMITMENT + DRIVE WED ENE DR R IV + E REPORTEINTEGRATED INTEGRADOREPORT 20182018 02 S A T M N E E COMMITM WED ENE DR R IV + E TRANSFORMATION TRANSPARENCY TRANSCENDENCE S A T M N E E COMMITM Graña y Montero is proud to present our STATEMENT OF RESPONSIBILITY 2018 INTEGRATED REPORT as part “This document contains true and sufficient information regarding the course of business of Graña y Montero S.A.A. during 2018. Without prejudice of a crucial process that now finds us in a to the issuer’s liability, we, the undersigned parties, assume responsibility for the content hereof, in accordance with the applicable laws.” new stage of transformation, transparency, and transcendence, celebrating 85 YEARS of the same commitment as always and a Luis Díaz Olivero Patricia Barrios Cánepa renewed drive to excel. Corporate General Manager Corporate Head Accountant WED ENE DR R IV + E REPORTEINTEGRATED INTEGRADOREPORT 20182018 03 S A T M N E E COMMITM PART PART PART PART 1 2 3 4 THE FOUNDATION A NEW RESPONSIBLE APPENDIX 93 OF OUR GROWTH 04 BUSINESS BUSINESS STRATEGY 27 FOR A BETTER FUTURE 57 APPENDIX CONTENTS 94 LETTER TO THE SHAREHOLDERS 05 CORPORATE GOVERNANCE 95 OUR ACHIEVEMENTS 09 ENGINNERING AND CONSTRUCTION 29 REPORT ON GOOD CORPORATE STRENGTHENING TRANSPARENCY AND ETHICS 59 GOVERNANCE 102 INFRASTRUCTURE 39 OF OUR CORPORATE EXTERNAL COMMUNITY 63 REPORT ON SHAREHOLDING GOVERNANCE, RISK REAL ESTATE 51 STRUCTURE BY INVESTOR TYPE 162 MANAGEMENT CLIENT MANAGEMENT 66 AND COMPLIANCE 10 HUMAN RESOURCES INVESTOR RELATIONS 163 FINANCIAL STRENGTHENING 12 MANAGEMENT 71 CORPORATE SUSTAINABILITY ECONOMIC PERFORMANCE 2018 14 ENVIRONMENT 76 REPORT 168 STRENGTHENING SUPPLIERS 80 GENERAL INFORMATION OF COMMUNICATION 18 ON THE COMPANY 176 OCCUPATIONAL CULTURAL HEALTH AND SAFETY 83 MATERIALITY PROCESS 178 STRENGTHENING 20 FLAGSHIP PROGRAMS 87 GRI STANDARDS OUR TIMELINE 22 ABOUT THE REPORT 92 CONTENT INDEX 180 WED ENE DR R IV + E REPORTEINTEGRATED INTEGRADOREPORT 20182018 04 S A T M N E E COMMITM PART 1 THE FOUNDATION OF OUR GROWTH “We strive for change because our responsibility sets us apart and our integrity guarantees the future of our business”. Iván López Zegarra GMP Human Resources Superintendent WED ENE DR R IV + E REPORTEINTEGRATED INTEGRADOREPORT PART 1 20182018 THE FOUNDATION OF OUR GROWTH 05 S A T M N E E COMMITM LETTER TO THE SHAREHOLDERS On behalf of the Board of Directors, — Dear shareholders: On behalf of the Board of Directors, I am pleased to present to you the Annual Report for 2018, our I am pleased to present to you eighty-fifth year in business. A year’s success is measured by its results, its advances, the challenges surmounted, and the vision the Annual Report for 2018, that will guide a company through the coming years. Seen from this perspective, 2018 will undoubtedly be remembered at Graña y Montero as a pivotal year: the year in which we finished laying the foundation for our future, after navigating the serious financial and reputational crisis in our eighty-fifth year in business. which we have been immersed for the last two years. Indeed, 2018 will be looked back upon as the year of institutional transformation, financial stabilization, and the reinforcement of institutional values. During 2018, we consolidated our new organizational structure aimed at once again growing in a sustainable manner and bolstering our vision of becoming the most reliable and trustworthy engineering and construction company in Latin America. We have reorganized the Company around three business lines, anchored in our specialties of engineering and construction, infrastructure, and real estate. Our strategic objective is to become a flexible organization that works as a unified regional unit with the same capacities in all three countries where our offices are located: Peru, Chile, and Colombia. The financial strategies adopted over the course of 2018 have helped stabilize Graña y Montero. Our proactive asset divestment program and ambitious capital increase process augur a future marked by sound financial health. As of the close of 2018, the Company had managed to reduce its total debt by US$ 174 million (-21%) to US$ 654.67 million, allowing us to meet several of our payment commitments in the financial system. WED ENE DR R IV + E REPORTEINTEGRATED INTEGRADOREPORT PART 1 20182018 THE FOUNDATION OF OUR GROWTH 06 S A T M N E E COMMITM As you know, it was resolved on 6 November 2018 to increase Note should also be made of other projects awarded over the Thanks to all of the changes the Company’s capital stock by US$ 130 million, using these course of the year, such as the auxiliary works at the Talara funds to strengthen our capital. The amount raised in the first Refinery for US$ 352 million, and the project for the construction we have done, we have made stage, consisting of the preemptive subscription rounds, totaled of a steel plant for Aceros Arequipa for US$ 35 million. US$ 42.5 million. We would also like to take a moment to highlight some of our notable progress in the As of the close of the year, the private offering process is still other important projects at this time, which truly reflect the open and we will be making our best efforts to place the impact our work has on society as a whole: remaining balance of US$ 87 million via private offering. To development of our business. With the expansion of the Lima Metro Line 1, we will be able achieve this, the management has begun a process for private – placement with Peruvian and foreign companies. The Company to transport nearly 500,000 passengers per day and reduce expects to bring this fundraising stage to a successful close. the wait time between trains from 6 minutes to 3 minutes, while also upgrading and expanding five stations. In fact, it The capital raised in the capital increase process will mainly be is thanks to this project that the prestigious magazine Latin used to amortize the balance of the structural debt of Graña y Finance recognized us as the company with the best Montero S.A.A., inject working capital into GyM S.A., and pay transportation infrastructure financing in Latin America. off debts to many of our suppliers. Through GMP, we achieved an average production of 3,656 – Thanks to all of the changes we have done, we have made barrels of crude per day in 2018, equivalent to approximately notable progress in the development of our business, with a 10% of national production. growth reflected in a Backlog plus recurring business of US$ 2.018 billion, which represents nearly two years of turnover. Our real estate arm, Viva GyM, sold over 1,900 units for the – This result was possible thanks to the renewed trust placed in us year, for an increase of approximately 35% over the total by our clients, who awarded us new contracts, notably those for sales for the previous year, maintaining our position as the mining projects Quellaveco (Peru), for US$ 53.9 million; leaders in market share, in terms of both units sold and sales Minera Escondida (Chile), for US$ 35.67 million; and Mina revenues. This also situates us in first place in mortgage Justa (Peru), for US$ 85 million. disbursements under the MiVivienda program. Thanks to WED ENE DR R IV + E REPORTEINTEGRATED INTEGRADOREPORT PART 1 20182018 THE FOUNDATION OF OUR GROWTH 07 S A T M N E E COMMITM these results, we received two Mivivienda awards: first place other hand, we have provided over 8,000 hours of training on In 2018, we continued to in the category for placement of housing units with Nuevo topics of risk, ethics, and compliance, as well as our Crédito Mivivienda financing in Lima and Callao, and first anticorruption policy and our money laundering and terrorism strengthen our Corporate place in the category for placement of housing units with financing prevention policy. We now have a new Code of Mivivienda Verde certification in Lima and Callao. Business Conduct and a revamped Ethics Channel. Governance, Risk, and One of the most important milestones during the year was the The transformation undergone by Graña y Montero and the provision for 100% of potential civil reparations in the advances it has made are the result of a complex process that Compliance System in company’s financial statements as of December 2018, has forced us to take a hard look at ourselves so that we can calculating these potential reparations using the methodology correct our mistakes and plot our future progress in keeping keeping with the commitment established for such purpose in Law 30737. This goes to prove with the principles of truth, transparency, and integrity set the seriousness with which Graña y Montero takes the forth by this Board of Directors in 2017, when it took on the we assumed in May 2017. proceedings in which it has been involved, and demonstrates challenge of spearheading a new stage of profound and that, as we have publicly declared, we will take full far-reaching changes in the organization. responsibility in the event that the investigations and The current results have only been possible thanks to our team proceedings currently underway find that the Group’s former members’ identification with the principles defended by the officers took part in acts of corruption in relation to the company and the corporate values that form the foundation of projects being investigated. our culture. Indeed, their professionalism and hard work in In 2018, we continued to strengthen our Corporate making Graña y Montero a company that is more committed Governance, Risk, and Compliance System in keeping with the than ever to Peruvian society are the true driving forces behind commitment we assumed in May 2017.