Annual report 2012 finalpdf

15YEARS ANNUALREPORT

2012

Index

INDEX

ACCOUNTABILITY STATEMENT

MISSION, VISION AND VALUES LETTER TO SHAREHOLDERS

THE BUSINESS>General Information>Brief Historical Background>Shareholders >Holdings in Other Companies >Board of Directors and Management Team

FINANCIAL INFORMATION>Year-end Status Report 2012 >Economic Outlook and the Securities Market>CAVALI’s Major Indicators

MANAGEMENT REPORT>Initiatives and Projects Developed During 2012 >Institutional Management>Administration>Legal Processes>People responsible for the audited financial information ANNEXES>Stock corresponding to Fiscal Year 2012 >Corporate Governance Report 2012 >Information Concerning the Compliance With Good Corporate Governance Principles for Peruvian Companies >Audited Financial Statements

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Index2 ANNUAL REPORT 2012

Accountability

STATEMENT

This document comprises pertinent and truthful information concerning the activities of CAVALI S.A. I.C.L.V. during 2012.

Without prejudice to the liability assumed by the issuer, the undersigned hereby assume responsibility for the content hereof pursuant to applicable legal provisions.

Lima, March 11 2013

José Antonio Blanco Cáceres Víctor Manuel Sánchez AzañeroPresident of the Board of Directors General Manager

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MISSIONTo be the business model of a Depository Center in the region.

VISIONTo offer an integrated, secure and ef-ficient service of Clearing, Settlement, Registry and Custody of Securities to all our users, following international stan-dards, contributing to the development of the Securities Market.

VALUESCommitment High level of identification of CAVALI’s workers with the goals and objec-tives of the organization.

HonestyProper and honest performance in the Company, protecting the resources assigned and acting with integrity at all times.

Discretion and confidentiality To maintain a constant course of action of an absolute and strict confiden-tiality of the information to which one has access.

Responsibility and diligenceTo prioritize the respect to the Constitution and rules in general over per-sonal interest, in order to preserve and strengthen the trust of the market.

TransparencyClear conduct, without ambiguities, complying with the internal policies and facilitating the monitoring actions for the proper performance of the company.

Team workCompliance with common objectives, collaborating and sharing knowledge.

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ANNUAL REPORT 2012 Index4

Letter to SHAREHOLDERSDear Shareholders:

It is with great pleasure that, pursuant Articles 19° and 55° of CAVALI’s bylaws, I submit the An-nual Report, the Financial Statements, and the Independent Auditors’ Report, corresponding to the Fiscal Year 2012, for your consideration and approval.

2012 has been a favorable year for the Peruvian economy due to the positive change of 6.4% in the GDP. As a result, we became the Latin Ameri-can country with greatest growth, maintaining low inflation since it is within the goal range es-tablished by the Central Reserve Bank of Peru (2.8%).

The general growth of our economy would be sustained by both the dynamism of public in-vestment - which recovered from the previous year’s decline by registering a positive change of 24.6% - and by the dynamism of private invest-

ment (with a positive change of 13.6%). This dy-namism, plus the cautious fiscal and macroeco-nomic policies of the Government, has allowed the Moody’s agency to raise the qualification of the long-term bonds of the Peruvian Govern-ment in 2012, from Baa3 to Baa2.

However, the stock market activity has shown conservative results. The General Index of the Lima Stock Exchange (IGBVL) increased by 5.94%, the Selective Index of the Lima Stock Exchange (ISBVL) increased by 13.4%, while the Stock-Exchange Capitalization Index (INCA) in-creased by 6.60%.

Local and international investors showed a vola-tile behavior throughout the year. Daily volumes traded had an average of approximately USD 22.4 million, visibly below the transactions regis-tered in the previous year, although, they recov-ered at the end of the year, reaching USD 30.34 million per day (2.2% below last year).

In order to develop the market, CAVALI decided to reduce its rates by 10%, an initiative that added to the reduction of approved rates by the Superintendence of the Securities Market (SMV) and the Lima Stock Exchange (BVL), contributing to the reduction of transaction costs.

CAVALI, as well as other players of the market, is involved in the strengthening of the new local and international regulations. This is how, in addition to the implementation of the local tax modifications; the Company has started a diagnostic process for the implementation of the new requirements established by FATCA (Foreign Account Tax Com-pliance Act). Also, CAVALI, after being appointed as an Administrator of the Securities Settlement System, has started a process of compliance of the standards included in the regulation of the Securi-ties Settlement System.

Within the international context, CAVALI found-ed, along with BVL, CONFIEP, ASBANC, APESEG,

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Index5L E T T E R T O S H A R E H O L D E R S / ANNUAL REPORT 2012

AFP Association, APEF, ASAB Perú and Procapi-tales, the non-profit association InPerú, whose essential purpose is to promote the country abroad as an investment destination, assuming the Vice presidency as the incumbent represen-tative of CAVALI. Roadshows to Singapore, Hong Kong, Shanghai and London have been carried out. Three new roadshows will be carried out dur-ing 2013, with the purpose of reaching investors situated in Europe, Asia and the United States.

CAVALI also implemented its first data center abroad (in the United States) in 2012, in addi-tion to two local data centers. This is another step of the Company towards the technological strengthening and optimizing its business conti-nuity plan. As a result, it will continue to respond on an ongoing basis to the requirements of its clients and of the general environment. This is the first data processing center abroad and the third one of the Company.

In short, the year we closed was a period filled with many challenges for the securities market as a whole, as well as for CAVALI. In the middle of an environment that goes back and forth be-tween growth and volatility, the Company also went through a very special moment because it reached the first fifteen years of operation working in the development of an infrastructure that allows for the mitigation of the environ-ment’s risks and looking after the needs of the different players.

We feel proud to have effectively contributed to the growth of the market with the development of world-class solutions for the registration, clearing and settlement of securities. All of this not only to comply with our tasks efficiently and safely, but also to create business opportunities for our cli-ents, to create value for all our shareholders, and contribute with our work to the development of the country.

It is with the satisfaction of having directed, as President of the Board, one of the most impor-tant companies in the market that I also want to thank all the Directors that stood by me in this period that we are now closing, for all their con-stant and valuable support. Also, I renew my ap-preciation to all the shareholders for their trust and to our workers, whose painstaking work is the pillar for the accomplishments and recogni-tions of the Company.

José Antonio Blanco CáceresPresident of the Board of Directors

“NO DOUBT, 2012 HAD BEEN AN EXTRAORDINARILY GOOD YEAR FOR THE COMPANY, NOT ONLY FROM THE ECONOMIC AND FINANCIAL PERSPECTIVES, BUT ALSO FROM THE BUSI-NESS DEVELOPMENT AND ORGANIZATIONAL PROGRESS POINT OF VIEW.”

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Index6L E T T E R T O S H A R E H O L D E R S / ANNUAL REPORT 2012

THE BUSINESS

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GENERAL INFORMATION

CAVALI is the Central Register for Securities and Settlements in the Peruvian market. It is a private firm responsible for the registration, transfer, clearing and settlement of securities. Our area of activity includes transactions conducted within and outside of central trading mechanisms, as well as offering services directly to our partici-pants, issuers, and other players in the capital markets.

The Company also is a manager of the Settle-ment System and has been appointed by the Government as withholding agent for capital gains and interest income tax.

OFFICES:San IsidroAv. Santo Toribio 143, oficina 501 - San Isidro

Centro Histórico de LimaPasaje Acuña 191 – Centro Histórico

Central telefónica: (511) 311-2200Fax: (511) 311-2213

INCORPORATION AND REGISTRATION

Incorporated on April 30, 1997Notary: Alberto Flórez BarrónFile Nº 141364 of the Mercantile Registry of LimaCorporate registration: July 16, 1997

BUSINESS OBJECTIVES

CAVALI is a public corporation whose principal objectives are the registration, custody, clear-ing, and settlement of securities and instru-ments that derive from, and are authorized by the Superintendent of the Stock Market, as well as non-massively issued debt instruments. The International Standard Industrial Classification code under which CAVALI operates is 6712.

CORPORATE LIFE SPAN

CAVALI has an indefinite corporate life span.

SERVICES OFFERED

Book-entry System. CAVALI uses electronic book entries to record the securities issued by

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public and private entities, as well as changes (ownership, liens, etc.) that occur to them over time.

Settlement and clearing of operations ex-ecuted on the Lima Stock Exchange (BVL) and other trading mechanisms.

Services to Issuers. Processing corporate actions at the request of issuers and that are registered with CAVALI. These services include: payment of principal, payment of interest and dividends, delivery of preferential subscription certificates, discount deductions, delivery of shares, changes to nominal value, mergers, etc.

International Services. Links that enable market participants of the securities markets to deliver and receive securities from the Unit-ed States (DTCC), Canada (CDS), and Europe (through Euroclear, since 2012).

Registration of non-massively issued in-struments. Negotiable Invoices and Pension Reform bonds.

Index8 T H E B U S I N E S S / ANNUAL REPORT 2012

BRIEF HISTORICAL BACKGROUND

1997CONASEV Resolution No. 358-97-EF/94.10 au-thorized CAVALI to act as a securities clearing and settlement institution.On April 30, 1997, the corporation was formed after splitting off from the Lima Stock Exchange (BVL).

1999 First International link with CAVALI: United States (DTC).

2002 First Internal Regulations approved by CONASEV (now SMV) were published.

2006 CAVALI signed a technical cooperation agree-ment with the Central Securities Depository of the Dominican Republic (Cevaldom), for the pur-pose of advising them on technological, opera-tional, and legal aspects. This gave the company a position on the Board and 20% equity in the Company.

2007 CAVALI and the Depository Trust Company (DTC) signed a new agreement that expanded CAVALI’s direct access to DTC’s services to include cash settlement in transactions conducted by local participants in the United States.

2007 CONASEV (now SMV) authorized the listing of CAVALI common stock on the Lima Stock Ex-change (BVL).

2007CAVALI began its service of free-of-payment de-livery and receipt of securities to and from the Euromarket by opening a custody account with JP Morgan Chase Bank.

2008CAVALI became a participant in Canada’s CDS Clearing and Depository Services to facilitate free-of-payment delivery of securities between the two markets.

2009CAVALI increased its stake in the securities de-pository of Bolivia (EDV), to 27.23%, currently holding one seat on the Board of Directors.

2011CAVALI began its role as a withholding agent for capital gains and interest income tax.Operations began with MILA (Latin American In-tegrated Market), for which CAVALI serves as the central securities depository for Peru.

2012 Operations began with MILA (Latin American In-tegrated Market), for which CAVALI serves as the central securities depository for Peru.A third data center was added by the Company. It is the first abroad to guarantee business con-tinuity.

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Shareholder Nationality % Business Group Start Date

Bolsa de Valores de Lima Peruvian 40.0 None 10/19/2011

Negocios, Contactos y Finanzas Inversiones S.A. Peruvian 10.0 Grupo NCF

Inversiones 01/25/2010

Scotia Sociedad Agente de Bolsa S.A. Peruvian 5.0 Grupo

Scotiabank 12/31/2007

On the same date, shareholder stakes ranked as follows:

Stake Number of Shareholders Equity

Less than 1% 95 1.54%

1.0% - less than 5.0% 14 43.46%

5.0% - less than 10.0% 1 5.00%

10.0% and more 2 50.00%

Shareholders are distributed as follows when considering types of investors:

Type of investors Number of Shareholders Equity

Resident legal entities 18 86.17%

Non resident legal entities 06 10.68%

Resident individuals 86 3.09%

Non resident individuals 02 0.01%

Total 112 100%

SHAREHOLDERS

Capital stock and number of shares The Company’s capital stock is S/. 25,994,432 (nuevos soles), divided into 25,994,432 shares, each with a nominal value of S/.1, fully underwritten and paid-in. All shares are of the same class and series.

Type of shares The entirety of CAVALI’s capital stock is represented by common stock.

Shareholding structureAs of December 31, 2012, the following shareholders held more than 5% of CAVALI’s capital stock:

HOLDINGS IN OTHER COMPANIES

CAVALI is a shareholder of two foreign central securities depositories:

Central Securities Depository Country Equity

EDV- Entidad de Depósito de Valores de Bolivia Bolivia 27.23%

CEVALDOM - Depósito Centralizado de Valores S. A. Dominican Republic 20.003%

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BOARD OF DIRECTORS

For 2012, the Board of Directors consisted of the following individuals:

José Antonio Blanco CáceresPresidentMr. Blanco received a degree in Business Admin-istration from the Universidad del Pacífico and is a graduate of Harvard Business School’s General Management Program. Currently, Mr. Blanco is Chairman of the Board and General Manager of Citibank del Peru S.A. He also serves as a board member for the following organizations: Cámara de Compensación Electrónica, Asociación Peru-ana de Finanzas, Unibanca, American Chamber of Commerce (Amcham); he is likewise a board member for Asociación de Bancos (Asbanc), and Vice President for inPERU association. Mr. Blan-co has been on the board of CAVALI since April 2008.

Hernán Ricardo Bastias ParraguezVice ChairmanMr. Bastías is a public accountant with a degree in auditing from the Universidad de Talca, Chile. He also completed studies in Commercial Engi-neering at Mariano Egaña University in Santiago, Chile. He is the General Manager and Chairman of the Board of Cartisa Peru S.A., a corporate agent of the stock exchange. Mr. Bastías has been a CAVALI Board member since May 2001.

José Fernando Romero TapiaBoard MemberMr. Romero is an economist from Universidad Nacional Federico Villareal. He received a Mas-ter’s Degree in Business Administration from the Universidad Peruana de Ciencias Aplicadas (UPC) and master’s degree in Business Management and Organization from the Universidad Politéc-nica de Catalunya. He is also Chairman of the Board of the companies of the Grupo Financiero NCF: NCF INVERSIONES S.A., NCF INMOBILIARIA

and CREDINKA S.A. Mr. Romero is also a Director of the Lima Stock Exchange (BVL). He has been a CAVALI Board member since April 2008.

Julio Rafael Alcázar UzáteguiIndependent Board MemberMr. Alcázar graduated from the University of Lima and holds a Master’s Degree in Laws from the Catholic University of Lovaina, Belgium, where he graduated cum laude. He has taken specialization courses at The Hague Academy of International Law, in Holland, and at the Practic-ing Law Institute, in New York City. Currently he is the Principal Partner of Rebaza, Alcázar & De Las Casas Abogados Financieros. He has been an Independent CAVALI Board member since March 2010.

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BOARD OF DIRECTORS AND MANAGEMENT TEAM


BOARD OF DIRECTORS

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T H E B U S I N E S S / ANNUAL REPORT 2012 Index12

Alejandro José Roberto Bazo Bertrán Board MemberMr. Bazo holds a degree in economics from San Martín de Porres University and an MBA from the Universidad Peruana de Ciencias Aplicadas. He was a member of the board until January 2012.

Manuel José Marcos Bustamante LettsBoard MemberMr. Bustamante holds a Bachelor of Laws Degree from the University of Lima. He has twice been a Board member and Vice Chairman of the Board of the Lima Stock Exchange (BVL). Currently he is Chairman of the Board and General Manager of Promotores e Inversiones Investa S.A. S.A.B. He has been a CAVALI Board member since March 2010.

Carlos Enrique Olivera Niño de GuzmánBoard MemberMr. Olivera holds a degree in economics from the Universidad Nacional Mayor de San Mar-cos. He has a Master’s Degree in Administration from ESAN University. He has held the position

of Manager of the Treasury Division of Banco Financiero since March 2004. He has been a CAVALI Board member since May 2001 and was Chairman of the Board until March 2010.

Walter Martín Palmer BardalesBoard MemberMr. Palmer is an economist from the Universidad de Lima. He holds a Master’s Degree in Busi-ness Management by the Universidad de Piura. He has worked as a part-time professor at the Universidad de Lima, where he taught Capital Market and Project Assessment courses. He is the General Manager of Scotia Bolsa S.A. He has been a member of CAVALI’s Board of Directors since April 2012.

MANAGEMENT TEAM

Víctor Sánchez Azañero General Manager Mr. Sánchez is a Certified Public Accountant. He graduated from San Martín de Porras University

and holds an MBA from the University of Piura. He is a member of the Board of Directors of Bolivia´s Entidad de Depósito de Valores (EDV) and of the Central de Valores in the Dominican Republic (CEVALDOM), as the corporation´s rep-resentative. He is also on the Board of Procapi-tales. Prior to becoming CAVALI’s General Man-ager, he served as its Central Manager. He was Deputy Manager of the Lima Stock Exchange CSD from 1992 to 1997. He has been a member of the management team since 1997.

Magaly Martínez MattoLegal and International Relations ManagerMs. Martínez holds a law degree from Universi-dad de Lima and a Master’s Degree in Corporate Law from the graduate school of the Universi-dad Peruana de Ciencias Aplicadas (UPC). She is a Deputy Director of the Entidad de Depósito de Valores (EDV) de Bolivia. She is a member of the Executive and Legal Committee of the Americas’ Central Securities Depository Association (AC-SDA). She is a professor at UPC Law School. She has been a member of the management team since 1997.

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MANAGEMENT TEAM

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Alberto López Blanco Compliance ManagerMr. López holds a degree in Business Manage-ment from the Universidad de Lima. He has worked in the management, control, risk and compliance areas throughout his career in the company. He has been part of CAVALI’s manage-ment team since 1998.

Roberto Oyos MendozaInternal Audit ManagerHe is a Public Accountant and a graduate from Universidad Nacional Mayor de San Marcos, He holds a Master´s Degree in Audit and Control of Corporate Management from Universidad Univer-sidad Particular San Martin de Porres. He has over sixteen years of experience in auditing and con-sulting in financial institutions, insurance com-panies and the securities market. He has been a member of the management team since 2011.

Claudio Arciniega LucesServices and Operations ManagerMr. Arciniega is an economist from the Univer-sidad Ricardo Palma; he holds an MBA from the Universidad de Piura. He has worked as the WARI

Project Manager, Risk Control and Administration Manager and Business and Research Manager, throughout his career in the company. He has been part of CAVALI’s management team since 2002. He was appointed Services and Opera-tions Manager in September 2012.

Alberto Figari GonzalesSystems ManagerMr. Figari holds a degree in Computer Science from the University of Nebraska and completed specialized studies provided by Forté Software in Forté System Administration and Object Oriented Analysis Design in New Jersey and California, re-spectively. He also holds a certificate in CMMI from the European Software Institute. He has been a member of the management team since 2007.

Ana Sandra Pérez AgüeroRisk ManagerMs. Pérez is an economist from the Universidad del Pacífico. She holds a Master’s Degree in Fi-nance from the same university. She has more than 15 years of experience in several aspects of risk management and control aspects in com-panies of the financial system. She has been a

member of CAVALI’s management team since September 2012.

Vanessa Barton VerganiBusiness and Research Manager (e) Ms. Barton holds a business administration de-gree from Universidad Ricardo Palma. She also has a Master´s Degree in Business Administration from Universidad del Pacífico. Ms. Barton has been working in matters related to the securities market for sixteen years. In 2005, she obtained the Proj-ect Manager Professional certification granted by the Project Management Institute. She has been a member of the management team since 2007.

Jesús Palomino GalarzaServices and Operations ManagerMr. Palomino holds a degree in economics from the Universidad del Pacífico and an MBA from ESAN University. He is also a graduate of the Pro-grama de Desarollo Directivo (PDD) of the Upper-level Management Program of the University of Piura. He has completed graduate studies in Project Formulation and Evaluation at ESAN Uni-versity and in Financial Risk Management at the Tecnológico de Monterrey. He was part of the management team until 2012.

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Tano Araujo KakiuchiFinance and Administration ManagerMr. Araujo is a graduate in Economy from the Universidad de Lima. He holds a Master’s Degree in Business Management by the Universidad de Piura and the IESE from Spain. He has more than 12 years of experience in the administration, quality and talent management field in multi-national companies. He was part of the manage-ment team until 2012.

Lucy Rodríguez PalominoDeputy Manager of Administration and Ac-counting Ms. Rodríguez holds a degree in accounting from Universidad de Lima. She has postgraduate studies in Taxation and International Standards of Financial Information from the same univer-sity. She has also carried out studies in Human Resources Administration. She has worked in matters realted to the securities market for ap-proximately 13 years. She has been part of the mangement team since 2002.

Rosa Luz Bravo Huapaya Deputy Manager of Data Control and SecurityMs. Bravo is a graduate in Computer Science from the Universidad Nacional Mayor de San Marcos. She holds a Masters in Management from the Universidad ESAN, majoring in Interna-tional Business, with postgraduate studies from the Handelshochschule Leipzig in Germany. She has obtained the following international certi-fications: CISA (Certified Information Systems Auditor), CISM (Certified Information Security Manager) and CRISC (Certified in Risk and Infor-mation Systems Control). She has specializations in Information Safety Management System and Business Continuity Management System. She has 23 years of experience in the securities mar-ket and 6 years in companies of the financial and commercial areas. She has been a member of the management team since 2009.

Ricardo Chong RiveraDeputy Manager of Services and OperationMr. Chong is a graduate in Business Management from the Universidad del Pacífico. He participated in the PADE program in Corporate Finances from the Universidad ESAN. He has over 8 years of experience in the securities market, specializing in matters related to the securities depository and registration services; as well as cross-border custody and settlement. He has been a part of CAVALI’s management team since May 2012.

The percentage that represents the total amount of the salaries of the members of Board and Management Team of CAVALI, in comparison to the level of gross incomes, according to the entity’s financial statements, is 10%. There is no degree of connection, of relationship or consanguinity, among the directors, the management team, or the main shareholders of the Company.

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Financial INFORMATION


YEAR-END STATUS REPORT 2012

At the end of 2012, CAVALI offered positive re-sults for its shareholders. Net profits were S/. 9,613,738, a 28.0% increase compared with 2011. The Company’s market capitalization grew to S/. S/. 197,557,683.20, a 4% increase com-pared with the same period in 2011.

EBITDA was 29% lower than the previous year. Return on assets (ROA) was 21%, while return on equity (ROE) was 25%.

INCOME AND EXPENSES

Operating income declined by 9.3% compared with 2011 due to low trading volumes, especially during the three first quarters. A breakdown of income shows the dominant position held by transaction settlements of the operations held at the Lima Stock Exchange (BVL) and other mechanisms; it continues to be our main source of income.

Furthermore, non-current assets increased by 14% during 2012, due to CAVALI’s increased in-vestment in EDV and CEVALDOM, and valuation of real state. Intangible assets accounted for 38% of all non-current assets. Thus, total assets at the close of 2012 were S/. 51.7 million, a 10% increase compared with 2011.

At S/. 5.5 million, the Company’s current liabili-ties in 2012 were 20% higher than at the close of 2011. Non-current liabilities were 28% higher than in 2011. Thus, CAVALI had total liabilities of S/. 8.9 million, up 11% compared with 2011.

Net worth closed 8% higher than in 2011, pri-marily the result of profitability in 2012.

Meanwhile, operational expenses increased by 14.3% in 2012, primarily due to project expenses incurred throughout the year. Overall, operation-al expenses were concentrated in Payroll (52%), Third-party Services (31%), Provisions for the Fiscal Year (16%), Sundry Management Charges (4%), and Duties (1%).

ASSETS AND LIABILITIES

At the end of 2012, current assets were at S/. 24.7 million, 7% higher than in 2011. This was due primarily to the net difference of the high-est balance in cash and bank accounts minus dis-bursements for project execution. The bank bal-ance accounted for 52% of total current assets.

Item 2011 2012 Annual Change

Operational Income 68.0% 70.0% -2%

Services to Issuers 15.0% 14.0% -1%

Services to Participants 7.0% 8.0% 1%

Financial and Sundries 10.0% 8.0% -2%

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Index18F I N A N C I A L I N F O R M AT I O N / ANNUAL REPORT 2012

LIQUIDITY

CAVALI’s overall liquidity ratio in 2012 was 5.3 times greater than in 2011. A liquidity ratio of this type allows the Company to respond quickly to potential short-term debt contingencies, which ensures normal conduct of operations.

ECONOMIC OUTLOOK AND THE SECURITIES MARKET

ECONOMIC OUTLOOK

The Peruvian Economy is experiencing one of the most optimistic moments of recent decades, in spite of a weak global economic activity. On one hand, due to the recovery of the United States, the advanced economies grow timidly (1.3% a year, estimated for 2012), mainly because of the stagnation of the Eurozone (-0.4% a year, esti-mated for 2012) and other signs that complicate the situation, such as the crisis affecting Japan.

On the other hand, the emerging economies and developing countries have registered a joint growth of 5.1%, and although it does not exceed what was accomplished in 2011, it is maintained with very positive expectations for the coming years. In this group, the growth of the countries that are part of the ASEAN-5 (Philippines, Thai-land, Indonesia, Malaysia and Vietnam) stands out, as well as the countries from the Middle East and the North of Africa, which were the only ones exceeding the performance from 2011.

In Latin America, the growth is in line with the growth of the emerging economies, where ac-cording to the ECLAC (Economic Commission for Latin America and the Caribbean), the growths of Paraguay (8.5%), Panama (7.5%) and Peru (6.4%) stand out. Our country is among those that performed better by maintaining a sus-tained growth, while at the same time retaining a low inflation index (2.8% according to the esti-mates of the Central Reserve Bank of Peru).

According to the INEI results (up to the close of November 2012), the areas that grew the most, in comparison to what was registered in the same

period last year, were Construction (15.52%), Fi-nance and Insurance (10.69%), Restaurants and Hotels (8.94%) and Services provided to compa-nies (7.56%).

The trade balance in the January-November 2012 period amounted to USD 3,789 million and was comprised of USD 41,768 million in exports and USD 37,979 million in imports. In this way, imports had growth of 12.6% and exports had a setback of 0.4%, in comparison to the same period of the previous year. Non-traditional exports increased the most in the period of January-November 2012, increasing 10.1% and reaching USD 10,049 million. In turn, the imports sector that grew the most was consumer goods (24.1%).

The national currency continued to increase in value throughout the year, mainly due to the positive flow of exports and the entry of long-term capital, mostly related to direct foreign in-vestment. Therefore, during 2012, the dollar had an accumulated negative variation of 5.04%, reaching an average exchange rate of S/. 2.569 at the end of December.

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In turn, tax revenue was up to December 2012 reaching S/. 84,131 million, which meant an an-nual increase of 7.4%. As a result, a tax burden of 16.02% of Gross Domestic Product (GDP) was achieved, the highest registered in 32 years.

SECURITIES MARKET

The ups and downs of the crisis affecting the developed economies were reflected in the per-formance of the global stock markets. 2012 was a year when volatility became a constant, but offered surprisingly, at the end of the period, im-portant improvements in some of the main glob-al markets and indexes. In this way, S&P Global BMI had an increase of 14.0% at the end of 2012. Also, S&P gained 13.4%, Nasdaq Composite In-dex gained about 16%, the Hang Seng gained 22.5% and the FTSE 100 gained 5.84%.

Lima Stock Exchange followed this trend and closed the year with positive indexes: 5.94% progress for the IGBVL - General Index of the Lima Stock Exchange (20,629.35 points) and

13.4% for the ISBVL - Selective Index of the Lima Stock Exchange (31,000.60 points). In turn, the National Capitalization Index (INCA) closed the year with an appreciation of 6.60% by reaching 108.42 points.

However, this was accomplished after a year of ups and downs: a promising first semester was weakened by a downward second semester, and later recovered slightly at the end of the third quarter. But it was a series of extraordinary transactions in December that promoted the positive numbers of the indexes by improving the amounts traded.

Following the drive created by the domestic demand, the sector indexes that had the best yield were the ones associated with private consumption and credit: Banks and financial in-stitutions (38.9%), Sundries (29.1%), Services (22.5%) and Industrial (3.87%). On the opposite side, the ones registering declines were related to the demand of the global markets: Mining (-3.55%) and agricultural (-0.73%). In this line, the subsector of junior mining companies de-creased by 17.5%.

The stock-exchange capitalization of the Lima Stock Exchange showed a recovery in 2012 by registering a total of USD 153,404.19, exceed-ing by 26% the USD 121,596.15 registered the previous year.

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Table 1 Valuation of holdings registered in CAVALI

USD million

Category December2012

Variation % December

2012December

2011

MARKET ValuationEquities 153,404.00 26.16% 121,596.15 Debt instruments 17,603.00 8.11% 16,281.97 Total 171,007.00 24.03% 137,878.12

CAVALI S.A. ICLV

Valuation (1) Equities 56,588.00 -0.35% 56,786.75 Debt instruments 20,859.00 6.90% 19,513.30 Total 77,447.00 1.50% 76,300.04

Valuation (2)Equities 54,500.00 0.00% 54,501.39 Debt instruments 17,603.00 8.11% 16,281.97 Total 72,103.00 1.86% 70,783.35

[1] This valuation includes registered and non registered securities in Lima Stock Exchange (BVL) [2] This valuation includes only securities registered in Lima Stock Exchange (BVL)

The value of equity holdings registered with CAVALI account for 73.1% of the total. The standouts among these securities were: Mining sector (31.1%), Banks and Finance (20.8%), Foreign-issued securities (10.59) Utilities (9.9%).

Graph 1Equity holdings by sector

CAVALI’S MAJOR INDICATORS

TOTAL VALUATION

Upon the closing of 2012, the total valuation of the holdings registered in CAVALI was equivalent to USD 77,447 million, which meant a recovery of 1.50% in comparison to the same period of the previous year. This improve-ment was result of an increase of 6.90% in the holdings of fixed income.

15YEARS

31.4% Mining

20.8% Bank and Finance

10.9% Foreing issued Securities

9.9% Utilities

9.8% Sundries

9.8% Industrial

3.4% Investment Funds

2.1% Insurance

1.9% Other


Graph 2Debt holdings by instrument type

DEMATERIALIZATION

Upon the closing of 2012, the percentage of dematerialization was of 42.16%, a total 17.87% less than the 51.34% registered upon the closing of 2011.

Table 2Annual percentage of dematerialization


Valuation %December 2012

December2011

Equities 35.53% -20.74% 44.82%

% dematerialization Debt instruments 100.00% 0.00% 100.00%

Total 42.16% -17.87% 51.34%

Debt instruments account for 26.9% of holdings registered with CAVALI. At the close of 2012 the following categories comprised the major com-ponents of debt instruments: Treasury Bonds (58.5%), Corporate Bonds (25.1%), Pension Reform Bonds (7.5%), Subordinated Bonds (2.9%) and Securitization Bonds (1.9%).

15YEARS

58.5% Treasury Bonds

25.1% Corporate Bonds

7.5% Pension Reform Bonds

2.9% Subordinated Bonds

1.9% Securitization Bonds

1.3% Leasing Bonds

1.3% Foreign Issued Bonds

1.6% Others


1 This valuation includes registered and non registered securities in Bolsa de Valores de Lima. 2 This valuation includes only securities registered in Bolsa de Valores de Lima.

Table 3 Number of accounts, securities and holders registered


Valuation %December 2012

Total number of registered accounts 490,054 0.60%

Number of registered securitiesEquities 648 10.58%Debt instruments 635 -42.22%Total 1,283 -23.86%

Number of registered holders with balances greater than zero 380,568 -2.55%

Resident Number of registered accounts 483,065 0.42%% market share 26.38% -24.16%

No Residentes Number of registered accounts 6,989 15.05%

% market share 18.91% -8.01%

HOLDERS AND SECURITIES

The number of accounts (holder-security relation) registered in CAVALI had a slight increase of 0.60% in 2012. The segment that grew the most was of the accounts belonging to non-residents (15.05%), while the ones belong-ing to residents increased by 0.42%. In turn, the number of holders with a balance over zero was of 380,568, which meant an increase of 2.55%.

Graph 3Holders and accounts

15YEARS

480

485

490

495

500

505

510

376

378

380

382

384

386

388

390

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Holders Accounts

Holders Accounts


NON-RESIDENT INVESTORS

At the end of 2012, the number of non-resident investors with a balance was of 2,776. The valuation of holdings of this segment reached USD 32,335 million, which represented an increase of 14.08% in comparison to the same period of the previous year. The share of the non-resident in-vestors in the total valuation of the holdings registered in CAVALI was of 41.80%, which meant an increase of 12.53% in comparison to the previous year. Equity holdings grew by 9.77% while holdings in debt instruments grew 35.82%.


Variation %December 2012

Valuation residents

Equities 30,632.00 -7.57%Debt instruments 14,480.00 -2.27%Total 45,112.00 -5.93%% of total valuation 58.20% -7.40%

Valuation Non residents

Equities 25,956.00 9.77%Debt instruments 6,379.00 35.82%Total 32,335.00 14.08%% of total valuation 41.80% 12.53%

Table 4Valuation by type of investor

0% 5%

10% 15% 20% 25% 30% 35% 40% 45% 50%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

% USD million

Share Valuation Share

Graph 4Valuation and share of non-resident investors’ holdings

15YEARS


In relation to the composition of holdings of non-resident investors by country, it was observed that the countries with the greatest share were: United States (36.0%), Panama (17.3%), Bahamas (7.5%), British Virgin Islands (6.1%) and Spain (5.9%). The first of these countries is once again the one with the greatest share from the total of non-resident investors. The United States and Panama have more than 50% of the holdings of this type of investors.

Graph 5Composition of the proportionate valuation by country of non-resident in-vestors

Graph 6Valuation of holdings by type of institutional investor

INSTITUTIONAL INVESTORS

As of December 2012, the valuation of equity holdings of institutional in-vestors registered in CAVALI was USD 13.148 billion.

Pension fund managers, banks, and finance companies are the major in-stitutional investors, with equity holdings that account for 87% of total institutional investor holdings.

*The securitization firms have a participation of 0.004%.

15YEARS

36.0% United States

17.3% Panama

7.5% Bahamas

6.1% British Virgin Islands

5.9% Spain

4.8% Holland

4.4% Bermudas

18.0% Otros

Pension FundAdministrators

Bank andFinance

StockBrokers

InsuranceCompanies

Investmentand Mutual

Funds

SecuritizationCompanies *

44.75%

41.87%

6.60% 3.68% 3.09%0.00%

45.00%40.00%35.00%30.00%25.00%20.00%15.00%10.00%

5.00%0.00%


SETTLEMENT OF TRANSACTIONS

During 2012, CAVALI settled transactions for a total of USD 35,686,974,919 in equity and fixed income transactions. 59.96% of the total of these transac-tions corresponds to transactions with debt instruments, while 40.04% cor-responds to equity transactions.

Table 5 Settlement of transactions by instrument type

Table 6Settlement of equity transactions by type

Type of instruments USD

Equities 14,290,005,519

Fixed income 21,396,969,400

Total 35,686,974,919

SETTLEMENT OF EQUITY TRANSACTIONS

The transactions of the spot market trading sessions in the Lima Stock Ex-change were the largest part of the transactions executed with this instru-ment, reaching 86% of the settled transactions.

Transaction USD

Cash Market 12,304,352,975

Repurchasement Agreement 1,873,155,082

Primary Auction 112,497,462

Total 14,290,005,519

15YEARS


The settlement of equity transactions in stock exchange sessions of the Lima Stock Exchange amounted to USD 12,304,352,975.

81.0% of the total came from the trading executed by legal entities who have increased 12 percentage points in comparison to the closing of 2011. Non-resident legal entities clearly stood out in this group, obtaining 54.3% of the total share.

Table 7Settlement of equity transactions in the BLV (Spot market trading session)

Holders Volume Traded USD Net by Investor B+S by Investor B+S %

Resident Buy % Sale %

Individuals 1,057,717,040 17.2% 1,183,811,442 19.2% (126,094,402) 2,241,528,481 18.2%

Legal Entities 898,579,036 14.6% 941,763,717 15.3% (43,184,681) 1,840,342,753 15.0%

Pension Funds 459,433,769 7.5% 491,515,678 8.0% (32,081,909) 950,949,447 7.7%

Other legal entities 330,497,390 5.4% 106,482,499 1.7% 224,014,891 436,979,889 3.6%

Total - Residents 2,746,227,235 44.6% 2,723,573,336 44.3% 5,469,800,571 44.5%

Non resident - - -

Individuals 95,536,545 1.6% 57,092,419 0.9% 38,444,126 152,628,964 1.2%

Legal Entities 3,310,412,707 53.8% 3,371,510,732 54.8% (61,098,025) 6,681,923,440 54.3%

Total Non resident 3,405,949,253 55.4% 3,428,603,152 55.7% 6,834,552,404 55.5%

Total Traded 6,152,176,488 100% 6,152,176,487 100% 12,304,352,975 100%

15YEARS


SETTLEMENT OF FIXED INCOME TRANSACTIONS

Concerning fixed income transactions, the negotiation of public debt cap-tured the bulk of the negotiated amounts and constituted 93% of the total.

Table 8Settlement of fixed income transactions by type

Transaction USD

Public Debt Market 19,806,923,670.37

Repurchase agreement 769,917,395

Money Market 767,504,422

Continous Bond Market 52,623,913

Total 21,396,969,400

CORPORATE ACTIONS

During 2012, CAVALI registered a total of 5,017 corporate processes and extraordinary situations at request of the issuing companies, which meant an increase of 50% in comparison to the previous year.

Graph 7Number of corporate actions

15YEARS

1811

1080 931

574 437

184

0 200 400 600 800

1000 1200 1400 1600 1800 2000

Invoiceredemption

Payment ofInterest

Pension ReformBonds redemptions

Paymentof Dividends

Payment ofPrincipal

Others

Num

ber o

f cor

pora

te ac

tions


The type of corporate action that had the highest valuation was the merger of securities, equivalent to 75% of the total. Next is the division of securi-ties with 11% of the total, the delivery of fully paid shares with 5% and the payment of principal with 2%.

Table 9Valuation of corporate processes

15YEARS

40.87%

18.52%

8.10%

7.87%

7.49%

4.96%

4.57%

2.21%

1.74%

3.65%

Spin O�

Accumulating Shares

Payment of Principal

Payment of Interest

Delisted Securities

Payment of Dividends

Securities Uni�cation

Capital reduction

Suscription rights

Others

Graph 8Valuation of corporate processes

Corporate Actions 2012

USD

Spin Off 6,938,507,894

Accumulating Shares 3,143,445,488

Payment of Principal 1,375,834,350

Payment of Interest 1,335,989,418

Delisted Securities 1,271,271,460

Payment of Dividends 842,211,281

Securities Unification 776,457,079

Name Change without pvc 279,078,735

Capital reduction 375,779,579

Pension Reform Bonds redemptions 173,650,128

Suscription rights 295,454,629

Mergers 131,633,189

Others 36,919,648

Total 16,976,232,877


15YEARS

Management REPORT

Index30ANNUAL REPORT 2012

INITIATIVES AND PROJECTS DEVELOPED DURING 2012

Concerning the institutional goals, CAVALI set in motion several projects that will allow the Com-pany to continue expanding the infrastructure of the market based on the efficient and safe connection with other stock exchanges, as well as the entry of new players to the market.

a. Initiation of operations with Euroclear

With the purpose of expanding the investment options in foreign markets through its interna-tional links, CAVALI began operations as a par-ticipant of Euroclear Bank, one of the largest entities of Custody, Clearing and Settlement of securities of the world.

The link with Euroclear establishes a direct connection for Peru to the European securities market and 41 countries of the world, improving the conditions in which our country relates to

the global market, since its players can execute transactions abroad, minimizing the custody risks and accessing more services. As a result, Pe-ruvian broker firms (SAB), banks and institutional investors can deliver and receive securities from these markets. Also, they have the capability to trade local securities issued abroad, with better service conditions, opportunities and costs than in other places.

According to this agreement, the Peruvian mar-ket has the chance to interact not only with the European market, but also with Euroclear’s global client base, made up of over 1300 of the major financial firms of the world, central banks and supranationals.

This new link adds to the direct links already established by CAVALI with two of the most important markets of the world: the United States, with the DTC (Depository Trust Compa-ny) and Canada, with CDS (Clearing and Deposi-tory Services).

b. Data Center abroad

During the reviewed period, CAVALI added a data center in the United States with the purpose of technologically strengthening the Company and optimizing its business continuity plan. This is the first data processing center abroad, and the third one of the Company.

This places CAVALI in the highest level in disas-ter recovery and business continuity because it protects its operational continuity in case of a disaster affecting our country, ensuring the pro-vision of the services that the Company provides to the market.

In this way, CAVALI complies with the interna-tional infrastructure and security standards, keeping a data center over 5,000 kilometers away from Lima, the main headquarters of the Company.

15YEARS

Index31M A N A G E M E N T R E P O R T / ANNUAL REPORT 2012

c. Reduction of rates for trading session and the Alternative Securities Market.

In an effort to promote investment in the Pe-ruvian securities market, CAVALI reduced its rates by 10% applicable to the settlement of spot-market trading session transactions with equities. With this new reduction, the new rate became 0.0585% on the settled amount, with a minimum rate of S/. 5 for the settled amounts less than S/. 8,547.01.

This initiative coupled with the ones by the Su-perintendence of the Securities Market (SMV) and the Lima Stock Exchange (BVL) that also reduced by 10% the commissions and contributions relat-ed to the trading and settlement of transactions, with which the transactional cost of the investors in the stock market was reduced.

CAVALI also reduced by 50% the settlement rates of securities registered in the Alternative Securities Market (MAV), whose objective is to allow the small and medium companies (SME) to register their primary public offers of short-term instruments, as well as their secondary public

offers of shares and short-term instruments.

The Company also reduced by 15% the fees for securities registration, and the value mainte-nance, and information to issuers for this market segment.

d. New participants

CAVALI accepted two new participants during 2012. Banco Santander was accepted as an in-direct participant, allowing it to access services related to the Safekeeping Book.

The Company also accepted C.A. Sociedad Agente de Bolsa as a direct participant; it can therefore ac-cess the services related of the Accounting Reg-ister of CAVALI, as well as the clearing and settle-ment services for the transactions executed in centralized trading mechanisms, such as the BVL.

e. Sale of information

The Company began the Service of Sale of Infor-

mation to the Market with the purpose of meet-ing the demand of several entities requiring the analysis of information of the local securities market.

This service is directed towards the intermediar-ies of the securities market, institutional inves-tors, issuing companies, consultancy companies, among other private and public institutions.

INSTITUTIONAL MANAGEMENT

a. Administrator of Securities Settlement Systems

Through the approval of the Securities Settle-ment Systems (SLV) Regulation, the Superinten-dence of the Securities Market (SMV) established the legal framework applicable to the SLV and the SLV Administrator. CAVALI has been recognized by the Law of Payment Systems and Settlement of Securities as an SLV Administrator.

15YEARS


To properly assume this role, the Company began working in order to adjust its internal regulations, its governance structure, and its operational aspects to fit the Law and the SLV Regulation. According to the current regula-tions, it will be executed between 2013 and 2014.

b. Good Corporate Governance

Within the framework of conformance with the Good Corporate Governance Index (IBGC), CAV-ALI received the recognition of the Lima Stock Exchange as a “company that possesses good corporate governance practices”.

The companies possessing “good corporate governance practices” are those that the Lima Stock Exchange recognizes for having a solid governance structure, based on the principles of transparency, trust, equality, social responsi-bility, integrity and fluidity of information. This recognition was the result of the validation that the auditing company Ernst & Young executed on the governance principles that CAVALI pub-

lished this year in its Annual Report.

The Good Corporate Governance Index (IBGC) of the Lima Stock Exchange is a tool designed to reflect the behavior of the listed companies that have good corporate governance prac-tices. Also, the Stock Exchange recognizes companies that comply with high governance standards.

c. Preparation for the FATCA

CAVALI started a series of technical and opera-tional provisions related to the business model, in order to comply with the FATCA (Foreign Ac-count Tax Compliance Act), published in the United States and of global scope, affecting not only the institution, but also the Peruvian secu-rities market as a whole.

In this context, the Company carried out a series of seminars, along with the international con-sultancy company Deloitte, with the purpose of sharing the implications of the application of this law in Peru.

d. MILA (Integrated Latin American Market)

CAVALI and the companies that are part of the MILA (Integrated Latin American Market) worked during 2012 for the improvement and promotion of this market, which has the highest number of issuing companies of the region (556 listed com-panies) and is second in stock-exchange capital-ization (more than 712 trillion).

Among the main activities is the execution of the MILA Day, an event directed to the analysts of intermediaries and institutions interested in knowing better the issuing companies of this market and that was executed in each one of the member countries: Peru, Colombia and Chile.

e. inPERÚ

CAVALI joined the principal companies and orga-nizations of the Peruvian capital market to form inPerú, a private non-profit organization looking to promote Peru as an investment destination.

The association is comprised of CAVALI, the Lima Stock Exchange, the AFP Association, the

15YEARS


Banking Association, the Mutual Funds Associa-tion, Procapitales, the Peruvian Association of Insurance Companies, the Association of Micro-financial Institutions of Peru, and the Peruvian Finance Association.

Two roadshows have been carried out in Europe (London) and Asia (Hong Kong, Shanghai and Singapore), while three events are already being scheduled in new cities of Europe, Asia and the United States of America.

f. Marca Perú

The Company became a licensee of the Marca Perú, the initiative of the Peruvian government to promote the benefits of the country in differ-ent aspects of the national economy and cul-ture, among which is the attraction of invest-ment.

CAVALI has been preparing a series of institu-tional activities that will allow it to promote this concept as part of the communication strategy of the Company.

g. Institutional Relations

The Company has had an active participation in industry events and has carried out others that have contributed in the spreading of the ben-efits of the securities market.

Therefore, with the purpose of knowing the latest progresses of the global industry, dif-ferent executives of the Company participated in the following international events: ACSDA workshop regarding the principles for financial market infrastructures, conducted in Miami; The Americas Securities Services Forum 2012, organized by Citi in the United States; the An-nual Assembly of the ACSDA, carried out this year in Colombia; and GREAT - Global Relations Exchange & Training, organized by DTCC in New York.

CAVALI also organized the IV Money Laundering and Terrorism Financing Prevention Forum, de-veloped by CAVALI and the Lima Stock Exchange: it is an event that had the participation of the compliance, control and operations areas of the local brokerage firms and its purpose to be a con-

versation space about the challenges that the securities market must take on in order to face these crimes.

The Company participated in other events that were useful to spread the role of the Company and its expertise in the securities market. This happened with the participation in the VII Con-vention of the Capital Market, organized by Pro-capitales, the 6th ExpoBolsa, organized by the Lima Stock Exchange and the InfoBolsa, also or-ganized by the Lima Stock Exchange, and which allowed us to carry the message of the Company to three cities of the country: Trujillo, Chiclayo and Arequipa.

h. Social Responsibility

CAVALI has actively contributed with the Oper-ación Sonrisa in the development of awareness and fund raising campaigns to operate on chil-dren of low income with hare lip and cleft pal-ates. Therefore, the Company’s workers partici-pated in the Kilómetro del Sol, an event that was held in the Jockey Plaza shopping mall, where

15YEARS


funds were raised among the attendees. Also, thanks to a donation of the Company and the workers, surgeries were carried out on children at the Hipólito Unanue Hospital of El Agustino.

ADMINISTRATION

As of December 2012, CAVALI employed the following number of employees:

Year Officials(*)

PermanentEmployees

TemporaryEmployees Total

2010 10 65 01 66

2011 10 65 06 71

2012 11 70 10 80

(*) Covers Managers and Assistant managers included in the permanent category

LEGAL PROCESSES

It is the opinion of the Company’s Management and the legal consultants that during the reviewed period there were no legal processes that due to their nature could affect the normal performance of the Company’s ac-tivities.

PEOPLE RESPONSIBLE FOR THE AUDITED FINANCIAL INFORMATION

According to its policy of not hiring for more than three consecutive years the same auditing company for the review of the financial information, CAVALI has opted to contract Ernst & Young for this period.

15YEARS


ANNEXES

15YEARS

ANNUAL REPORT 2012

1. Stock corresponding to Fiscal Year 2012.

2. Annual Report on Corporate Governance .

3. Information concerning the compliance with good corporate governance principles for peruvian companies (Corresponding to fiscal year 2012).

4. Financial statements .

Index36

15YEARS

A N N E X E S / ANNUAL REPORT 2012

STOCK CORRESPONDING TO FISCAL YEAR 2012

QUOTES

ISIN Code Symbol Year - Month OpenPEN

ClosePEN

HighPEN

LowPEN Average PEN

PEP727201001 CAVALIC1 2012-01 7.30 7.20 7.30 7.20 7.23

PEP727201001 CAVALIC1 2012-02 7.45 7.50 7.50 7.45 7.50

PEP727201001 CAVALIC1 2012-03 7.50 7.75 7.75 7.50 7.66

PEP727201001 CAVALIC1 2012-04 7.75 7.50 7.75 7.50 7.66

PEP727201001 CAVALIC1 2012-05 7.50 7.48 7.50 7.46 7.48

PEP727201001 CAVALIC1 2012-06 7.50 7.50 7.50 7.40 7.49

PEP727201001 CAVALIC1 2012-07 7.60 7.60 7.60 7.60 7.60

PEP727201001 CAVALIC1 2012-08 -.- -.- -.- -.- -.-

PEP727201001 CAVALIC1 2012-09 -.- -.- -.- -.- -.-

PEP727201001 CAVALIC1 2012-10 -.- -.- -.- -.- -.-

PEP727201001 CAVALIC1 2012-11 -.- -.- -.- -.- -.-

PEP727201001 CAVALIC1 2012-12 -.- -.- -.- -.- -.-

Index37

15YEARS

A N N E X E S / ANNUAL REPORT 2012

DIVIDENDS DISTRIBUTED IN 2012

Currency Dividend per share Date of Delivery Period

S/. 0.06 02/17/2012 2011

S/. 0.1850736 04/23/2012 2011

S/. 0.0361616 05/18/2012 2012

S/. 0.0164148 08/13/2012 2012

S/. 0.0158124 11/14/2012 2012

Index38

15YEARS

C O R P O R AT E G O V E R N A N C E R E P O R T / ANNUAL REPORT 2012 Index39

CORPORATE GOVERNANCE

REPORT 2012

15YEARS

1. CAVALI’s Corporate Governance Approach 2. Business Information 2.1 Internal Legal Framew 2.2 Structure of Ownership

3. Shareholder’s Rights 3.1 General Meeting of Shareholders 3.2 Information Transparency 3.3 Dividend Policy 3.4 Minority Shareholders Protection 3.5 Third Party Reviews

4. Structure of the Board of Directors 4.1 Members of the Board 4.1.1 Attendance at Board Meetings 4.1.2 Remunerations of the Board 4.1.3 Evaluation of the Board

4.2 Board Committees 4.2.1 Audit Committee 4.2.2 Corporate Governance and Development Committee 4.2.3 Investment and Settlement Fund Management Committee 4.3 Conflicts of Interest

5. Corporate Government Initiatives during 2012 5.1 Integration of corporate governance goals in the Institutional Strategic Planning. 5.2 Improvement in the relationship with shareholders 5.3 Participation in institutional activities 5.4 Compliance Report 5.5 Participation in institutional activities

6. Recommendations

15YEARS


1. CAVALI’S CORPORATE GOVERNANCE APPROACH

The commitment to strengthen good corporate governance practices has emerged as a natural response to the significant institutional development that CAVALI has been achieving throughout recent years. Consequently, the key elements of corporate governance – such as formalizing the scope of control or being open to information transparency – became the tools used to efficiently manage the Company, but mostly to build trust among all stakeholders.

With the development of good corporate governance practices, the re-sponsibility is also supplemented with a systemic element: CAVALI´s as-signment to be the only company that carries out the registration, custody, transfer, clearing, and settlement of securities in the Peruvian market.

This situation poses a double challenge to the institution as it requires the development of governmental parameters that can protect the interests of CAVALI’s shareholders – for it is a listed company - and, secondly, to respond to the legitimate interest of the many groups that converge in local market (stock brokerage firms, local investors, non-resident investors, etc.).

Therefore, CAVALI has included in its Strategic Objective 2010-2012, the need to strengthen its good corporate governance practices. In order to accomplish this, the firm has been implementing a set of changes and as-sessments on its legal framework and governing bodies, which will raise its standards and activities.

Therefore, CAVALI has included in its 2010-2012 Strategic Objectives, the need to strengthen corporate governance practices. In this way, the com-pany has implemented a set of changes and evaluations for its legal frame-work and government bodies which will raise its standards of action.

It is important to highlight that the Corporate Governance and Develop-ment Committee and the Board of Directors chosen for the 2010-2013 period that is about to end, have taken important steps towards the imple-mentation of corporate governance practices and we expect that the Board of Directors to be chosen for the next period continues with this purpose, in order to create greater value for the company.

Within the most meaningful corporate governance improvements in this current period, we obtained an acknowledgment of Good Corporate Gov-ernance Practices by the Good Corporate Governance Index - IBGC 2012 of the Lima Stock Exchange (BVL). Also, we implement the corporate gover-nance recommendations presented by the company MC&F Consultores, after having presented a Corporate Governance Quality Report, prepared for obtaining a diagnostics that shows CAVALI’S status regarding best cor-porate governance practices.

The implementation plan of the recommendations mentioned in the pre-vious paragraph includes the approva,l by the Corporate Governance and Development Committee and CAVALI’s Board of Directors, of a series of policies and amendments to the Board’s Regulation, the Regulation of the Board’s Committees and the Internal Rules of Conduct.

15YEARS


Also, the Board has approved the amendments to CAVALI’s bylaws and they will be submitted to the approval of the General Shareholder’s Meeting.

2. BUSINESS INFORMATION

2.1 Internal Legal Framework

CAVALI S.A. I.C.L.V. is the Peruvian Central Securities Depository, a private en-tity responsible for the registration, transfer, clearing, and settlement of se-curities. The company also provides services directly to investors and issuers.

CAVALI was incorporated and registered in the Commercial Registry of Lima in 1997. In the same year, the Company was approved by the Peruvian Se-curities and Exchange Commission (CONASEV) to act as securities clearing and settlement institution (ICLV) through CONASEV Resolution No. 358-97-EF/94.10.

In addition to the applicable legal requirements, CAVALI has established its own legal regime consisting of the following documents:

a. BylawsThe last modification made to this document dates from March 23, 2012. The partial amendment of the Bylaws was made pursuant to the agreements made at the General Meeting of Shareholders held on March 26, 2012.

This amendment was duly communicated as an important notice to the SMV (Superintendency of the Securities Market), the Lima Stock Exchange (BVL) and was approved by the SMV through the Superintendent’s Resolu-tion N° 163-2012-SMV/02. It is currently in the registration process in the Public Records.

b. General Meeting of Shareholders RegulationIt was approved by the General Meeting of Shareholders held on November 30, 2009 and duly notified as an important notice to SMV and BVL.

c. Board of Director’s RegulationsIt was approved by the General Meeting of Shareholders held on November 30, 2009 and duly notified as an important notice to SMV and BVL.

The last amendment made to this document was approved in the Board’s meeting held on December 19th 2012.

d. Board Committees RegulationsIt was approved by the General Meeting of Shareholders held on November 30, 2009 and duly notified as an important notice to SMV and BVL.

e. Risk Committee RegulationIt was approved by the Board of Directors on September 2, 2010 and gov-erns the powers and purposes of the Committee comprised by controlling bodies such as Compliance Management, Risk Management and Internal Audit Management.

15YEARS


f. Internal Rules of ConductThis document normalizes the conduct of CAVALI´s Directors, administrative personnel, and all employees in the performance of their functions. Its purpose is to promote efficiency, transparency, and security in the services rendered.

This document was last modified in November 2012.

g. Internal PoliciesThese policies regulate the operation of key organizational aspects. To date, there are 16 policies which were approved by the General Manager of the company.

h. Operating ManualsThese manuals are documents that specify the activities of management and of all employees across the organization. The manuals are approved by the General Manager of the institution.

i. Procedures ManualThe procedures manuals are documents that specify how the activities of the Company should be developed. These manuals are approved by the General Manager.

2.2 Shareholding Structure

The capital stock of the Company is S/. 25’994,432. It was increased as per resolution of the General Meeting of Shareholders held on March 31, 2010

in virtue of the capitalization of profits generated by the company in 2009 by bonus shares issued in pro rata to the amount of capital paid-up on ex-isting shareholdings.

The capital is divided in 25’994,432 shares with a face value of S/.1 each, completely created in and paid. All shares are of the same class and series.

As of December 31, 2012, the structure of the company was as follow:

Shareholder Nationality % Date Start

Bolsa de Valores de Lima Peruvian 40.0 01/25/2010

Negocios, Contactos y Finanzas Inversiones S.A. Peruvian 10.0 01/25/2010

Scotia Sociedad Agente de Bolsa S.A. Peruvian 5.0 12/31/2007

Shareholder Equity

Bolsa de Valores de Lima 40.00%

Brokers 31.67%

Banks 7.28%

Others 21.05%

Total 100.00%

Peruvian legislation establishes an ownership limit of 40% for Stock Ex-changes and of 10% for other shareholders. In 2010, Law No. 29638 en-

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tered into force. This law provides that such restrictions do not apply in cases of corporate integration between securities clearing and settlement institutions, or between these and international stock exchanges autho-rized by CONASEV provided that these are compliance with the require-ments set forth by said entity by means of a general rule.

CAVALI performs operations with its shareholders who participate in the stock market since it is the only company in the country that provides the security registration, custody, clearing, and settlement service. The com-pany does not engage in operations with its controlling shareholders as this may harm minority shareholders.

3. SHAREHOLDER’S RIGHTS

3.1 General Meeting of Shareholders

During the period reviewed, CAVALI convened just one General Meeting of Shareholders which was held on March 26, 2012.

The quorum of the General Meeting was 79% of shares, represented by 14 shareholders of a total of 122, who freely exercised their right to partici-pate directly or by assigning a representative.

The topics covered were as follows:

• ReviewandapprovaloftheAnnualReportandthe2011FinancialState-ments, ruled by the external auditors.

• Reviewandapprovalofthe2011AnnualReportonCorporateGovernance.• Confirmationoftheinterimdividenddistributionagreementsawarded

during fiscal year 2011.• Solutionontheapplicationofprofitsofthe2011fiscalyear.• Solutiononthemodificationofthethirtyfirstandthirtythirdarticlesof

the bylaws.• DesignationordelegationintheBoardofExternalAuditorsforthe2012

fiscal year and the determination of their payment.

Good Practices Regarding Shareholders’ Meetings

Pursuant to the terms of the Regulations of the General Meeting of Share-holders, CAVALI held a Meeting on March 26, 2012, according to the follow-ing practices:

• Thenotice,agenda,andmotionsoftheGeneralMeetingwerepublishedon March 02, 2012; this is 14 calendar days before holding this meeting.

• Allmotionsanddocumentssubjecttoboardapprovalweremadeavail-able to shareholders. These documents were available online in the sec-tion “Relación con nuestros accionistas” of the company’s website and in the section “Important Notices” of the websites of SMV and BVL. Also, these documents were available at the request of the shareholders at CAVALI’s offices.

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• Allitemsandtopicsincludedinthenoticeconveningthemeetingwerefully respected.

• Itemsincludedintheagendawerediscussedindetailandwerevotedbythe General Meeting.

• Once theagreementsweremade, thesewerepublishedas importantnotices in the websites of SMB, BVL and CAVALI.

3.2 Information Transparency

Shareholder Support Service

The company has delegated to the registered representative the tasks of providing support to its equity shareholders. To this end, the following in-formation can be found on the corporate website of the company:

Venue:Headquarters: (Avenida Santo Toribio 143, oficina 501, San Isidro).Hours: 9:00 AM a 5:45 PME-mail: [email protected] 2012, there were no complaints or requirement submitted by the shareholders of the institution.

3.3 Dividends Policy

The General Meeting of Shareholders of CAVALI annually agree on the distribution of a minimum of 20% of available net income obtained in the

previous year (if any). The Board of Directors is entrusted with the power to set the payment date and the possibility of establishing the payment in advance of interim dividends.

This policy is available in the minutes of the Mandatory General Meetings of Shareholders held on May 15, 2001; March 26, 2002; March 17, 2005; and, March 23, 2006, and in the minutes of the board meeting dated April 29, 2008.

Note that on May 24, 2007, under the procedures for listing the shares of CAVALI´s capital stock, the then standing dividend policy was sent to the BVL.

Also, as important notices dated April 30, 2008, the market was informed that, by delegation of the General Meeting of Shareholders, CAVALI´s Board has the power to assess the possibility of distributing as interim dividend 40% of the retained earnings in each quarter of the year, on the basis of the financial statements which are prepared for such purposes and in strict compliance with all applicable legal provisions..

Any change made to the dividend policy is made public as important notices that are sent to SMV.

3.4 Protection for the minority shareholder

CAVALI has paid, through stock brokerage firms, dividends to all sharehold-ers of the company, so that by the end of 2012 no debt was registered un-der this account.

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In article 10 of the Bylaws, the Company recognizes that any and all classes of shares that can be issued are equal. Currently, the Company only has common shares with voting rights that vest their holders with equal rights and obligations.

3.5 Third Party Reviews

Pursuant to current regulations, the following review activities are per-formed:

Audit of Financial Statements.The audit of Financial Statements is regulated by article 23 of the Rules of ICLV. It is performed annually by an external audit firm. The auditor is se-lected by following the Independent Auditor Selection Policy.

Operational and IT Audit.This audit is regulated by article 23 of the Rules of ICLV, and it is performed annually by an external audit firm. The auditor is selected by following the Independent Auditor Selection Policy.

Audit of the Settlement Fund.This audit is regulated by article 100 of the Rules of ICLV, and it is performed annually by an external audit firm. The auditor is selected by following the Independent Auditor Selection Policy.

Annual external audit on the Money Laundering and Terrorism Financing Prevention System in CAVALIRuled by CONASEV resolution N° 033-2011-EF/94.01.1 from May 22nd 2011 “Rules for the Prevention of Money Laundering and the Financing of Terrorism”, this audit complements the Financial Statements audit and must be executed at least once a year.

Annual Periodic Inspections performed by SMVAccording to current regulations, the controller provides for the develop-ment of periodic inspections of the institution in all matters within its com-petence.

Information sent to Central Bank According to rule 15 of the Payment System Regulation, CAVALI as admin-istrator of a Payment System is required to send quarterly reports regard-ing the company’s failures and disruptions in the systems, financial state-ments, current rate structure, and others.

4. COMPANY’S STRUCTURE

4.1 Members of the Board of Directors

The Board is governed by the provisions set forth in the Bylaws and the Board Regulations.

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During 2012, CAVALI was governed by the 2010-2013 Board of Directors. This Board is made up of seven members, one of which is an independent Board Member.

The members of the Board are:

José Antonio Blanco Cáceres (President)Mr. Blanco received a degree in Business Administration from the Univer-sidad del Pacífico and is a graduate of Harvard Business School’s General Management Program. Currently, Mr. Blanco is Chairman of the Board and General Manager of Citibank del Peru S.A. He also serves as a board mem-ber for the following organizations: Cámara de Compensación Electrónica, Asociación Peruana de Finanzas, Unibanca, American Chamber of Com-merce (Amcham); he is likewise a board member for Asociación de Bancos (Asbanc), and vice president for inPERU association. Mr. Blanco has been on the board of CAVALI since April 2008.

Hernán Ricardo Bastias Parraguez (Vice Chairman)Mr. Bastías is a public accountant with a degree in auditing from the Univer-sidad de Talca, Chile. He also completed studies in Commercial Engineering at Mariano Egaña University in Santiago, Chile. He is the General Manager and Chairman of the Board of Cartisa Peru S.A., a corporate agent of the stock exchange. Mr. Bastías has been a CAVALI Board member since May 2001. Rafael Alcázar Uzátegui (Independent Board Member)Mr. Alcázar graduated from the University of Lima and holds a Master’s degree in laws from the Catholic University of Lovaina, Belgium, where he

graduated cum laude. He has taken specialization courses at The Hague Academy of International Law, in Holland, and at the Practicing Law Insti-tute, in New York City. Currently he is the principal partner of Rebaza, Al-cázar & De Las Casas Abogados Financieros. He has been an Independent CAVALI Board member since March 2010.

Alejandro José Roberto Bazo Bertrán (Board Member)Mr. Bazo holds a degree in economics from San Martín de Porres University and an MBA from the Universidad Peruana de Ciencias Aplicadas. He was a member of the board until January 2012.

Manuel José Marcos Bustamante Letts (Board Member)Mr. Bustamante holds a Bachelor of Laws degree from the University of Lima. He has twice been a Board member and Vice Chairman of the Board of the Lima Stock Exchange (BVL). Currently he is Chairman of the Board and General Manager of Promotores e Inversiones Investa S.A. S.A.B. He has been a CAVALI Board member since March 2010.

Carlos Enrique Olivera Niño de Guzmán (Board Member)Mr. Olivera holds a degree in economics from the Universidad Nacional May-or de San Marcos. He has a master’s degree in administration from ESAN University. He has held the position of Manager of the Treasury Division of Banco Financiero since March 2004. He has been a CAVALI Board member since May 2001 and was Chairman of the Board until March 2010.

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José Fernando Romero Tapia (Board Member)Mr. Romero received an MBA from the Universidad Peruana de Ciencias Aplicadas (UPC) and a master’s in business management and organization from the Universidad Politécnica de Catalunya. He is also Chairman of the Board of the companies of the Grupo Financiero NCF: GRUPO NCF S.A., NCF SAFI S.A., NCF INVERSIONES S.A. and CREDINKA S.A. Mr. Romero is also a Di-rector of the Lima Stock Exchange (BVL) and of the Agrícola Chapi company. He has been a CAVALI Board member since April 2008.

Walter Martín Palmer Bardales (Board Member)He is an economist from the Universidad de Lima. He has a Master’s De-gree in Business Management by the Universidad de Piura (University of Piura). He has worked as hired part-time professor at the Universidad de Lima, where he taught Capital Market and Project Assessment courses. He is the General Manager of Scotia Bolsa S.A. He is member of CAVALI’s Board of Directors since April 2012.

4.1.1 Attendance to Board Meetings

During the period under review, 14 Board meetings were held. All of them were conducted during the term of 2010-2013.

On average, attendance at Board meetings reached 95%. The following table shows the attendance per meeting:

Board Term Board Members inAttendance

Percentage inAttendance

Meeting 1 2010’-2013. 07 100%Meeting 2 2010’-2013. 07 100%Meeting 3 2010’-2013. 07 100%Meeting 4 2010’-2013. 07 100%Meeting 5 2010’-2013. 06 86%Meeting 6 2010’-2013. 07 100%Meeting 7 2010’-2013. 06 86%Meeting 8 2010’-2013. 07 100%Meeting 9 2010’-2013. 07 100%

Meeting 10 2010’-2013. 06 86%Meeting 11 2010’-2013. 07 100%Meeting 12 2010’-2013. 06 86%Meeting 13 2010’-2013. 06 86%Meeting 14 2010’-2013. 07 100%

4.1.2 Remunerations of the Board

The General Meeting of Shareholders held on March 31, 2010 established a fixed remuneration for board members, which is paid on a monthly ba-sis without prejudice to the meetings that are held in the corresponding month, and provided that the member attends to the least half of the meetings held in such month.

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Taking into account the gross income of the company, the remuneration of the Board reached the following percentages:

Gross Income Total Remunerations

Board of Directors S/. 30,046,620 1%

4.1.3 Assessment of the Board of Directors

Pursuant to article twenty sixth of the Board’s Regulation, the process of assessing the members of the Board was carried out.

For that purpose, the format questionnaire approved in the Corporate Gov-ernance and Development Committee Meeting No. 06.11 from December 12th 2011, which allows assessing with greater precision the guidelines regarding the board’s meetings, as well as measuring in greater detail its dynamics and effectiveness, was used. Such procedure evaluates the op-eration and performance of the Board and its three backing committees.

The results were presented and analyzed by the Board.

4.2 Board Committees

CAVALI’s Board has formed three committees that support the manage-ment. According to the General Meeting of Shareholders on March 30,

2010, a fixed remuneration was set for Board committee members. The amount is paid on a monthly basis without prejudice to the meetings that are held in the corresponding month, provided that at least one meeting is held during such month and that the committee member has attended at least half of the meetings.

According to the standing Board Regulations the Company has three com-mittees:

4.2.1 Audit Committee

This committee has been formed to support the Board since April 18, 2006. Its operation is governed by the Board Committee Regulations.

As of December 31, 2012*, this committee was comprised by:

Name Position

Hernán Ricardo Bastías Parraguez President

José Antonio Blanco Cáceres Member

Alejandro José Roberto Bazo Bertrán Member until January 2012

Carlos Enrique Olivera Niño de Guzmán Member

Walter Martín Palmer Bardales Member since April 2012

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Six meetings were held. The attendance was as follows:

Meeting Term Board Members inAttendance Percentage in Attendance

Meeting 1 2010’-2013. 03 (*) 100%

Meeting 2 2010’-2013. 03 (*) 100%

Meeting 3 2010’-2013. 03 (*) 100%

Meeting4 2010’-2013. 03 75%

Meeting 5 2010’-2013. 04 100%

Meeting 6 2010’-2013. 03 75%

(*) The Committee was formed only by 03 members due to the vacancy generated by the resig-nation of Mr. Alejandro José Roberto Bazo Bertrán.

4.2.2 Corporate Governance and Development Committee

This committee was formed on April 18, 2006 and is governed by the Board Committee Regulations. As of December 31, 2012*, this committee was comprised by:

Name Position

Rafael Alcázar Uzátegui President

José Antonio Blanco Cáceres Member

Hernán Ricardo Bastías Parraguez Member

José Fernando Romero Tapia Member

Eight meetings were held. The attendance was as follows:

Meeting Board Members inAttendance Percentage in Attendance

Meeting 1 03 75%

Meeting 2 04 100%

Meeting 3 03 75%

Meeting 4 04 100%

Meeting 5 03 75%

Meeting 6 03 75%

Meeting 7 04 100%

Meeting 8 03 75%

4.2.3 Investment and Settlement Fund Management Committee

This committee was formed on March 23, 2006 and is governed by the Board Committee Regulations. As of December 31, 2012 this committee was comprised by:

Name Position

Carlos Enrique Olivera Niño de Guzmán President

Alejandro José Roberto Bazo Bertrán Member until March 2012

Manuel José Marcos Bustamante Letts Member

José Fernando Romero Tapia Member since February 2012

Hernán Ricardo Bastías Parraguez Member

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Eight meetings were held. The attendance was as follows:

Meeting Board Members inAttendance Percentage in Attendance

Meeting 1 03 100%

Meeting 2 03 100%

Meeting 3 03 100%

Meeting 4 03 100%

Meeting 5 03 100%

Meeting 6 03 100%

Meeting 7 03 100%

Meeting 8 03 100%

4.3 Conflicts of Interest

According to Article 40 of the Bylaws: “Board members must refrain from participating in the deliberation and resolution of issues on which they have and interest, or their spouses or relatives within the fourth degree of consanguinity and within the first of affinity, and - if applicable - the par-ticipant with whom they are involved with as a shareholder, director, rep-resentative, officer, employee, internal or external consultant or otherwise, or the participant who has a spouse or relatives within the fourth degree consanguinity or the first of affinity, whether a shareholder, director, agent, officer or employee. This fact must be communicated to the Board.”

During the reporting period, there was no conflict of interest within the Board.

5. INITIATIVES OF CORPORATE GOVERNANCE DURING 2012

5.1 Acknowledgment of Good Corporate Governance Practices by the Good Corporate Government Index - IBGC 2012 of the BVL.

In the year 2012, we participated in the Good Corporate Governance Index-IBGC 2012, organized by the Lima Stock Exchange (BVL).

Therefore, CAVALI hired Ernst & Young through its corporate name Medina, Zaldívar, Paredes y Asociados S. Civil de R.L., with the purpose of preparing the corresponding report of the compliance with the “Validation Param-eters for Good Corporate Governance Practices”.

The awarding and presentation of the new portfolio of the Good Corporate Governance Index 2012 was carried out on June 28th, 2012, in which we received the acknowledgment of the compliance with the Good Corporate Governance Practices.

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5.2 Implementation of improvement recommendations in Corporate Governance

During 2012, CAVALI worked on the implementation of the corporate gov-ernance recommendations presented by MC&F Consultores in its Corporate Governance Quality Report.

As it was informed in the Annual Corporate Governance Report correspond-ing to 2011, CAVALI hired MC&F Consultores with the purpose of obtain-ing a new diagnostic reflecting CAVALI’s status in relation to international standards. The diagnostic finished with twenty six corporate governance recommendations to be implemented.

Up to December 31st 2012, the following recommendations have been ap-proved:

1. Precise the concept of the directors’ profiles. The Board’s bylaws and regulation were modified with the purpose of defining the directors’ profiles, specifically the profile of the independent director.

2. Extension of information on stockholders at CAVALI’s website. This rec-ommendation was made to improve the exposure of CAVALI’s share-holding structure in its website. Therefore, it was agreed to reveal in the website the shareholding composition with name of all those who have more than 5% of the share capital (as it had been revealed ac-cording to the current SMV regulation); and, regarding the balance of

shareholders, to divide it in four blocks: resident and non-resident in-dividuals, resident and non-resident legal entities, indicating the per-centage and total number of shares per each one of them.

3. Website Management Policy. This policy has the purpose to establish guidelines for the administration and supervision of the information in the sections and subsections of CAVALI’s website.

4. Information policy. This policy has the purpose to establish the prin-ciples and criteria to use for the general treatment and classification of the information on which CAVALI relies, and to determine the people responsible for processing the information requests coming from dif-ferent interest groups, whether internal or external.

The information policy covers the implementation of two additional recommendations: (i) Follow-up of guidelines related to the handling of confidential information, and (ii) the procedure of assistance to share-holders.

5. Procedure of electing offices in the Board. This recommendation aims to establish the procedure and the criteria for the election of the of-fices of President and Vicepresident in the Board. Its implementation implied an amendment to the Board’s Regulation.

6. Training policy for the members of the Board. This policy aims to de-fine and regulate the training and continuous education procedures,

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oriented towards the acquisition, update and strengthening of the knowledge of the Board Members, regarding subjects related mainly to the development of CAVALI’s core business.

7. Definition of powers and responsibilities of the Board’s President and Vice-president. This recommendation aims to regulate the scope of the functions and responsibilities of the Board’s President and Vice-president. Its implementation included the amendment of the Board’s Regulation and a proposal to modify article thirty fourth of the bylaws, which will be submitted to consideration in the General Meeting of Shareholders in 2013.

8. Guidelines for the Board’s and Board Committees’ meetings. This rec-ommendation aims to establish the guidelines to follow for the holding of the Board’s and Board Committees’ Meetings, as well as the Board’s Meetings held without the presence of the General Manager. It also in-cludes the information delivery procedures for the Board’s Meetings.

The implementation of this recommendation included the amendment of the Board’s Regulation and a proposal to modify article thirty eight of the bylaws, which will be submitted to consideration in the Annual Mandatory Shareholders’ Meeting of 2013.

9. Procedure for the individual assessment of the Members of the Board. This recommendation aims to implement a mechanism for the yearly assessment of the Board, which evaluates the Board not only as a col-

legiate organization, as it is still done, but also executes an individual self-evaluation of each member of the Board.

10. Empowering the Committees integrated by directors, in order to make decisions within their authority area. The implementation of this rec-ommendation involved the amendment of the Board’s Regulation and the Regulation of the Board’s Committees.

11. Extension of the number of independent directors. This recommenda-tion aims to elevate the level of compliance with the corporate gov-ernance practices; therefore, the Board has agreed to present to the General Annual Mandatory Meeting of 2013 a proposal to amend the bylaws, in order to increase the number of members of the Board to eight, two of which would be independent directors.

12. Conflicts of interest policy. This policy aims to establish the guidelines and procedures to identify prevent and handle possible conflicts of in-terest that could arise during the development of CAVALI’s activities.

The implementation of this recommendation involved an amendment to CAVALI’s Internal Rules of Conduct and a proposal to amend the by-laws, which will be submitted to the approval of the General Meeting of Shareholders in 2013.

13. Policy of management of transactions between related parties. This policy aims to identify and evaluate the transactions executed be-

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tween CAVALI and third parties suppliers of goods and services with related people; as well as the implementation of a registry of transac-tions executed between the related parties.

5.3 Participation in institutional activities

During 2012, a director, the general manager and the legal manager of CAV-ALI participated in the VI and VII Corporate Governance Program for Com-pany Directors, organized by the PAD of the Universidad de Piura, Ernst & Young and the Universidad del Pacífico.

5.4 CAVALI’s participation in the committee for the update of the principles of the SMV

CAVALI has been named by the Superintendency of the Securities Market (SMV) as part of the technical team for the update of the corporate gover-nance principles that the SMV has been executing.

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15AÑOS

INFORMATION CONCERNING THE COMPLIANCE WITH GOOD CORPORATE GOVERNANCEPRINCIPLES FOR PERUVIAN COMPANIES(Corresponding to Fiscal Year 2012)

Name of the Company: CAVALI S.A. I.C.L.V. (Hereinafter THE COMPANY)

RUC (Tax Payer Registration N°): 20346669625

Address: Main Office: Av. Santo Toribio 143, Of. 501, San Isidro, Lima Lima Office: Pasaje Acuña 191. Cercado de Lima

Telephone: (511) 311-2200

Fax: (511) 311-2215

Website: www.cavali.com.pe

Email: [email protected]

Stock Exchange Representative: María Magaly Martínez Matto

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SECTION ONE: EVALUATION OF 26 PRINCIPLES

Shareholders’ rights

Principles Compliance0 1 2 3 4

1. Principle (I.C.1. second paragraph).- Agenda must not include generic issues. Items to be dealt with must be specified in such manner that each subject can be discussed separately, facilitat-ing its analysis and preventing the rendering of a joint decision over matters that may have a difference of opinion.

X

2. Principle (I.C.1. third paragraph).- The general meeting of share-holders shall be held in a venue that facilitates the attendance of shareholders.

X

a. Indicate the number of shareholders meetings called by the company during the fiscal year of this report.

Type Number

General meeting of shareholders 1

Special meeting of shareholders 0

b. If meetings of shareholders were organized, provide the following infor-mation for each of them.

Call date Date of the meeting

Venue of themeeting

Type of meeting

Quor

um %

Nº o

f att

endi

ng Duration

Spec

ial

Gene

ral

Time started

Time ended

02/03/12 26/03/12Main Office: Av.

Santo Toribio 143 – San Isidro

X 79% 14 10:20 11:00

c. In addition to what is set forth in Article 43 of the General Corporations Act, which other means does the company use to call meetings?

(X) WEBSITE (X) OTHERS. Please detail: The call and motions are posted on SMV, BVL

and Cavali’s website as Important Notices.

d. Indicate whether the means of communication specified in the previous question are regulated in any document of the company.

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Byla

ws

Inte

rnal

regu

latio

n

Man

ual

Othe

rs

Name of the document*

(…) (X) (...) (…) General Meeting of Shareholders Regulation

e. If the company has a corporate website, is it possible to view sharehold-ers’ meeting minutes at the site?

YES NO

Only for shareholders ( X ) ( …)

To general public (...) (X)

CAVALI’s website has a space for shareholders, who may request the Minutes of the General Meetings by e-mail to: [email protected]

On the other hand, the general public may have access to the Relevant Facts published in CAVALI, SMV and BVL’s website in order to be informed of the latest corporate agreements.

PrincipleCompliance

0 1 2 3 4

3. Principle (I.C.2).- Within reasonable limits, shareholders must have the opportunity to include items in the agenda of the ge-neral meetings for its discussion.Any items added to the agenda must be of corporate interest and suitable to the legal or statutory competence of the mee-ting. The Board of Directors must not reject such requests without informing the shareholder on the reasonable reason.

X

a. Indicate whether shareholders are permitted to include items to be dealt with into the agenda through some mechanisms, other than that stipulated in the General Corporations Act (Article 117 for regular corpo-rations (SA), and Article 255 for publicly traded corporations (SAA).

(…) YES (X) NO

Comment:CAVALI only considers the inclusion of issues that are brought just before the publication of the agenda for the General Meeting of Shareholders. Once the agenda is published, in accordance with article 116 of the General Corporations Act, no agreement other than the ones in the agenda can be adopted. Likewise, pursuant to article 120 of the Act, when shareholders representing the totality of subscribed shares with voting rights meet and unanimously accept to hold the meeting and to discuss any issue brought, then any issue on the agenda may be addressed. Furthermore, article 63 of CAVALI’s Bylaws set forth the application of article No. 181 of the General Corporations Act that allows the inclusion of issues in the direct exercise of social claims of liability against the directors.

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b. In case the answer to the previous question was positive, please detail the alternative mechanisms.

Not applicable

c. Indicate the mechanisms described in the previous question are regu-lated in any document of the Company.

Byla

ws

Inte

rnal

re

gula

tion

Man

ual

Othe

rs Name of the document

(...) (...) (...) (...) Not applicable

d. Indicate the number of requests made by shareholders during the fiscal period of this report to include into the agenda subjects to be discussed in the meetings.

Comment:No request has been made by any shareholder to include items in the agendas of the General Meetings held during this fiscal year.

PrincipleCompliance

0 1 2 3 4

4. Principle (I.C.4.i.).- Bylaws must not impose any limits to the en-titlement of a shareholder to the right to be represented, by a person appointed by the shareholder, in the General Meetings of Shareholders.

X

a. In accordance with the provisions of Article 122 of the General Corpora-tions Act, indicate whether the corporate bylaws limit the right to repre-sentation, by reserving it:

(X) THE RIGHT TO REPRESENTATION IS NOT LIMITED

b. For each meeting held during the fiscal year of this report, please indi-cate the following information:

Type of Meeting Date of Meeting

Percentage of the total number of shares with voting rights

General Special By proxy Directly

(X) (...) 03/26/2012 100%

Comment:The percentage of ownership interest represented by means of powers of attorney does not include legal entity shareholders acting by and through their legal representatives. Only third party representation has been taken into account.

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c. Indicate the requirements and formalities set forth for a shareholder to be represented in any meetings.

Formality (indicate whether the company requires aRegular letter, notarial letter, public deed or other)

For each Meeting, the shareholder is requested to submit a regular copy, fax, or written communication setting forth his/her representative. In the event of general powers of attorney, a power of attorney granted by means of a public deed is requested.

Advanced notice (number of days prior to the meeting for the proxy to be submitted)

Cost (indicate whether the company

requires payment to this effect; and if so, how much?)

No less than 24 hours before the time set for holding the meeting.

No.

d. Indicate whether the requirements and formalities described above are regulated in any document of the Company.

Byla

ws

Inte

rnal

re

gula

tion

Man

ual

Othe


(X) (X) (...) (...) Bylaws and General Meeting of Shareholders’ Regulation

The rules of representation set forth for all shareholders with the right to at-tend the General Meeting of Shareholders are published in CAVALI’s website, as well as a model of the powers of attorney in English and Spanish.

Equal treatment of shareholders

PrincipleCompliance

0 1 2 3 4

5. Principle (II.A.1, third paragraph).- It is advisable for any company issuing investment shares or other securities without voting rights, to offer its holders the opportunity to exchange them for ordinary shares with voting rights or to allow this possibility at the time of issuing.

X

a. Has the company started any exchange of investment stock in the past five years?

(...) YES (...) NO (X) NOT APPLICABLE

PrincipleCompliance

0 1 2 3 4

6. Principle (II.B).- A sufficient number of directors capable to is-suing independent opinions over matters with potential con-flicts of interest must be appointed. Minority shareholders must be considered for these positions.

Independent directors are appointed for to their professional standing, and for not being related to the company’s manage-ment or to the company’s controlling shareholders.

X

a. Indicate the number of dependent and independent directors of the company.

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Directors Number

Dependents 6

Independents 1

Total 7

Comment: After following the selection process in accordance with the company’s Bylaw and the Board of Directors’ Regulations, the General Meeting of Shareholders held on March, 31st 2010 appointed Julio Rafael Alcazar as CAVALI’s Indepen-dent Director.

b. Specify any special requirements (different from those necessary to be-come director) to be the Company’s independent director.

Pursuant the Bylaws, the Independent Director is chosen for his professional prestige, and must not be liable for any of the following: 1.- The relevant officers or employees of CAVALI S.A. I.C.L.V. and its auditors.

It applies to those who held such positions during the last twenty four months immediately before the date of appointment.

2.- Los directores, gerentes, trabajadores y accionistas que tengan igual o más del 25% del capital social de las empresas prestadoras de servicios, prov-eedores, deudores y acreedores de CAVALI S.A. I.C.L.V.

3.- Officers, managers, workers and shareholders that have 25% or more of the capital stock of the companies that provide services, suppliers, debtors and creditors of CAVALI S.A. I.C.L.V.

4.- Spouses, relatives up to the fourth degree of consanguinity or second of re-lationship, related to directors, managers and workers of CAVALI S.A. I.C.L.V.

5.- Direct or indirect competitors of the activities and services that CAVALI S.A. I.C.L.V. offers.

6.- Directors, managers and workers of the following companies: i) Lima Stock Exchange. ii) Entities regulating CAVALI. iii) Issuing companies with securities registered in CAVALI. iv) PParticipants of CAVALI.7.- Not having direct or indirect participation in the capital of CAVALI S.A. I.C.L.V.

at the moment of the appointment. The qualification as independent is not lost in case of acquiring shares of CAVALI’s capital stock for no valuable consideration or as a consequence of acquiring Mutual Funds Participation Certificates.

Also, the regulation of CAVALI’s Board establishes the specific characteristicsand profiles that the independent director must have:- Experience as a senior executive in companies from areas related and of the

same or greater magnitude as CAVALI S.A. I.C.L.V.- Recognized integrity and objectivity reputation.- Lack of conflicts of interest or limited exposure to them.- Commitment and willingness to participate in the Board Committees to

which he is summoned; as well as any other special responsibility CAVALI S.A. I.C.L.V. could assign to him as a director.

c. Indicate whether the special requirements described above are regu-lated in any document of the company.

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(X) (X) (...) (...) Bylaws and Board of Directors’ Regulations

d. Indicate whether the directors of the company are relatives in the first or second degree of consanguinity, or in the first degree of affinity, or spouse of one of the followings:

(X) Not applicable, CAVALI’s directors do not have relatives holding posi-tions as shareholders, directors, or managers in the Company.

Full name of director

Relationship to:

Full name of shareholder1/. /

Director / manager Affinity Additional

information2/.

Shar

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Dire

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Man

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Not applicable (...) (...) (...)

e. In the event that during the fiscal year of this report a member of the Board of Directors holds or held a managerial post in the Company, pro-vide the following information:

Full name of the directorManagement post

previously or currently held

Management’s post date

Start End

Not applicable

f. In case a member of the Board of Directors of the company is or has been - during the fiscal year of this report –a member of the board of direc-tors of another company or other companies listed in the Stock Market’s Public Registry, please provide the following information

Full name of the director Name of the company(ies)Date

Start End

José Antonio Blanco Cáceres Citibank del Perú S.A. 01/04/2011 N/A

Hernan Ricardo Bastías Parraguez

Sociedad Agente de Bolsa Cartisa S.A. 29/05/1996 N/A

Manuel Bustamante Letts Promotores e Inversiones Investa S.A. SAB 22/01/2004 N/A

José Fernando Romero Tapia Negocios, Contactos y Finanzas – Inversiones S.A. 24/04/2008 N/A

José Fernando Romero Tapia NCF Sociedad Administradora de Fondos de Inversión 22/04/2010 N/A

José Fernando Romero Tapia Bolsa de Valores de Lima S.A. 26/03/2010 N/A

15YEARS


Reporting Communication And Information Transparency

PrincipleCompliance

0 1 2 3 4

7. Principle (IV. C, second, third and fourth paragraph).- Although, generally, independent audits focus on issuing a report about financial information, they can also refer to specialized reports dealing with the following aspects: accounting examinations, op-erational audits, system audits, project evaluation, cost system evaluation or implementation, tax audits, appraisals for asset adjustment, portfolio evaluation, inventory matters and other special services.The recommendation is for these services to be performed by dif-ferent auditors; or if conducted by the same auditors, it should not affect the independence of their opinion. The company must disclose all of the auditor’s specialized audits and reports con-ducted and prepared. Information must also be provided with regard to all services pro-vided by the audit firm or auditor to the company, specifying the percentage represented by each service, as well as its share in the earnings of the audit firm o auditor.

X

a. Indicate the following information about the audit firm that has provided services to the company in the past five years.

Name of audit firm Service* Period Compensation**

Ernst & Young Financial Audit 2012 71%

Ernst & Young Money Laundering Audit 2012

Ernst & Young Systems and Operational Audit 2012

KPMG- Caipo & Asociados Financial Audit 2011 70%

BDO Money Laundering Audit 2011 XXXXXX

BDO Systems and Operational Audit 2011

KPMG- Caipo & Asociados Financial Audit 2010 70.8%

BDO Money Laundering Audit 2010


KPMG- Caipo & Asociados Financial Audit 2009 45.36%

BDO Money Laundering Audit 2009


Deloitte Financial Audit 2008 65.80%

HLB – Alonso, Callirgos, Mejía & Asoc. Money Laundering Audit 2008

HLB – Alonso, Callirgos, Mejía & Asoc. Systems and Operational Audit 2008

**Out of the total amount paid to the audit firm for all concepts, please specify the percentage corresponding to remuneration for financial audit services.

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b. Describe any pre-established mechanisms applicable to the hiring of audit firms to provide an opinion on the annual financial statements (in-clude an identification of the corporate body responsible for choosing the audit firm).

In accordance with the Independent Auditor Selection Policy , the process is as follows:

1.- Request for Proposals:

For selecting an audit firm, the management will request with due anticipation at least three proposals made by prestigious audit firms.

2.- Selection of the Audit Firm:

In accordance with the company’s bylaw, the General Meeting of Shareholders has the authority (or, in any case, the company may assign this authority) to decide on the firm that will audit the financial statements to be presented to the Board when so requested.Currently, the Board of Directors exerts this authority. In compliance with the In-dependent Auditor Selection Policy , the Audit Committee –in charge of review-ing the external audit firm options – proposes to the entire Board of Directors the selection thereof.

3.- Selection of the Audit Firm:

The Audit Committee suggests to the Board of Directors the contractual condi-tions and scope of professional services for the external auditors. The selected audit firm shall render the service for a maximum period of three consecutive years.Proposals for financial audits shall include the following scope and require-ments:

- Report on CAVALI’s financial statements (including the provisions set forth in articles 5 and 6 of General Management Resolution No. 001-2003-EF/94.11 dated January 3, 2003 and in Annex No. 1 thereto, regarding the information on funding accounts and securities);

- Report on the financial statements of the settlement fund;- Letter addressed to the Management regarding internal and accounting con-

trol matters of CAVALI and of the settlement fund;- Issue CAVALI’s financial statements in English language;- Agreement to deliver the final report on the sixth week after the closing bal-

ance sheet date at the latest.

4.- Reports

All final reports corresponding to ordinary and extraordinary external audits shall be submitted to the Chair of the Board of Directors or to the Audit Commit-tee within 15 calendar days after its final issue.

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c. Please state whether the mechanisms described above are contained in any document of the Company.

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(X) (X) (...) (X) Independent Auditor Selection Policy and Board Committee Regulations

d. Indicate whether the audit firm hired to issue an opinion on the com-pany’s financial statements of the fiscal year of this report, also issued an opinion on the same fiscal period’s financial statements of other com-panies of the company’s economic group.

(...) YES (X) NO

e. Indicate the number of meetings held between the area responsible for internal audit and the hired audit firm, during the fiscal year of this re-port.

NUMBER OF MEETINGS

0 1 2 3 4 5 More than 5 It’s doesn’t apply

(...) (...) (...) (...) (...) (...) (X) (...)

PrincipleCompliance

0 1 2 3 4

8. Principle (IV.D.2).- Specific requests for information submitted by shareholders, investors, or stakeholders must be channeled through the body and/or personnel responsible designated to such effect.

X

a. Indicate the mean (s) or manner (s) in which the company’s shareholders or stakeholders can request information so that it will be considered.

Shareholders Stakeholders

Email (X) (X)

Directly with the company (X) (X)

Telephone (X) (X)

Website (X) (X)

Postal mail (...) (...)

Others. Please, detail (...) (X)

Comment: It is important to indicate that CAVALI, as the sole entity that does the bookkeeping of securities that are traded in the Lima Stock Exchange as well as other private issue securities, has an information query procedure to search through data kept in said records.

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In this regard, chapter X of CAVALI’s Internal Regulations addresses infor-mation queries made by stakeholders (participants, issuers, security hold-ers, Stock Exchange, CONASEV, governmental entities, etc.) regulating the terms and the formalities to submit the information requested.

b. Notwithstanding the information duties of the General Manager pursu-ant to Article 190 of the General Corporations Act, please name the area and/or person responsible for receiving and processing any request for information submitted by shareholders. If an individual is responsible for this, please indicate his position and area in which he works.

Responsible AreaLegal Management

Persons responsible

Full name Position Area

Magaly Martinez Stock Exchange Representative Legal Management

c. Please indicate whether the procedure used by the company to deal with information requests from shareholders and/or stakeholders of the company are regulated in any document of the Company.

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(...) (X) (...) (...) Internal Regulations of CAVALIInformation Policy

d. If the company has a corporate website, does it have a special section on corporate governance or shareholder and investor relations?

(X) YES (…) NO (...) THE COMPANY DOES NOT HAVE WEBPAGE

e. During the fiscal year of this report, please indicate whether or not any type of complaint has been filed regarding limitation to access to infor-mation on the part of any particular shareholder.

(...) YES (X) NO

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PrincipleCompliance

0 1 2 3 4

9. Principle IV.D.3.).- Any doubt in reference to the confidential nature of the information requested by the shareholders or by the stakeholders related to the company must be resolved. The criteria must be adopted by the Board of Directors and ratified by the General Shareholder’s Meeting, and it must be included in the bylaws or internal regulation of the company. In any event, disclosure of information must not jeopardize the company’s competitive position or be likely to affect the normal undertaking of its business.

X

a. Who decides on the confidential nature of any given information?

(X) BOARD OF DIRECTORS (X) GENERAL MANAGER (...) OTHERS. Please, detail ......................................................................................

.. b. Please give details of pre-established objective criteria that allow classi-

fying a specific piece of information as confidential. Additionally, indicate the number of information requests submitted by shareholders, during the fiscal year of this report, which were rejected due to the confidential nature of the information.

First of all, any piece of information is deemed as confidential when it is protected as such by the Stock Market Law, under the figure of stock ex-change secret. Additionally, the company’s Internal Rules of Conduct indicate that for an

information to be deemed as confidential it must have the following char-acteristics: - The information is only known by limited number of people who: i) are

directly related to its generation or, ii) are entitled to know or request it because of their relation with CAVALI, according to the CAVALI’s Internal Regulation, Chapter X: Information Services.

- The information is capable of affecting business interests and thus has a potential trading value.

- The information has been subject to security measures to preserve its confidentiality, as per the Information Security Plan.

c. Indicate whether the criteria described above is contained in any docu-ment of the Company.

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( ) (...) (...) (X) Internal Rules of Conduct.Information Policy

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PrincipleCompliance

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10. Principle (IV.F, first paragraph).- The company must have an in-ternal audit area. In the exercise of its duty, the internal auditor must keep a professional-independent relationship with the company. The auditor must act in accordance with the princi-ples of diligence, loyalty and secrecy that are required from the Board of Directors and Management.

X

a. Indicate whether the company has an independent area responsible for internal audit.

(X) YES (...) NO

b. If the answer is yes, please hierarchically indicate where internal audit is attached to and to whom reports to within the company’s organic struc-ture.

Attached to: Board of DirectorsReports to: Board of Directors

c. Indicate the main duties of the person responsible for internal audit and whether or not that person performs other duties which are alien to inter-nal audit.

a. Support the Board of Directors and Management of CAVALI, conducting independent work regarding assurance and consultation, conceived to

add value, assisting the organization in meeting its purposes, contribut-ing with a systematic and disciplined approach to evaluate and improve the effectiveness of risk, control and governance (direction) processes.

b. Comply and ensure compliance by the subordinate staff, with regulation applicable to the prevention of the money and asset laundering crime, pursuant to the provisions issued by the Financial Intelligence Unit (UIF) (Law 27693 and subsequent amendments) and by the company itself (Money and Asset Laundering Crime Prevention Manual).

c. Direct and supervise the audit function and schedule an integrated plan to that effect.

d. Direct audits on the processes related to Funds and Securities Clearing and Settlement, the Accounting Register for the Securities, their corpo-rate processes, and the Administration and Finance records necessary to control the securities registered with CAVALI. Direct audits on Infor-mation Technology and System Security aspects.

e. Cooperate with the General Manager and do what may be required by specific requests made by the Board of Directors.

f. Evaluate the adequate management and utilization of the Organiza-tion’s human, material and financial resources.

g. Coordinate and cater to the requirements of CONASEV and of Indepen-dent Auditors relating to Internal Audit reports.

h. Supervise and train subordinate staff.i. Prepare specific work procedures and programs.j. Investigate any Event of Importance of the company, reporting to the

Board of Directors to that effect.k. Participate in Management and Information Security Committees as ob-

15YEARS


server, and act whenever circumstances warrant, or when considered convenient.

l. Verify compliance with the laws, standards, regulations and provisions issued by CONASEV.

m. Evaluate in accordance with the Annual Work Plan approved by the Board of Directors, the company’s operational, administrative, financial, and system internal control structure and propose any improvement deemed convenient to minimize risk.

n. Review the sufficiency of the contingency plan and operational safe-guards.

o. Ensure compliance with Board of Directors’ resolutions and with the policies, plans and procedures set forth.

p. Issue the annual report referring to the Money and Asset Laundering Crime Prevention System and submit it to the Compliance Officer.

q. Review to make sure that CAVALI assets are adequately booked and pro-tected against losses and unauthorized use.

r. Cooperate with Management on matters related to improvements in risk and control performance.

s. Keep up to date with the regulations issued by regulatory and/or super-visory entities.

t. Verify compliance with the company’s tax payments, pursuant to the provisions of the Annual Work Plan.

The Audit Manager does not perform any duties other than Internal Auditing.

d. Please state whether the duties described above are regulated in any document (s) of the company.

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( ) (...) (...) (X) Functions Manual

Duties of the board of Directors

PrincipleCompliance

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11. Principle (V.D.1).- The Board of Directors is in charge of the fo-llowing key duties:

Assess, approve, and conduct the corporate strategy; establish the objectives and goals, as well as main actions plan; follow up, risk management, and control policy; annual budgets and business plans; control its implementation; and supervise major expenses, investments, purchases and alienation.

X

a. If the Board of Directors of the company is responsible for the duty de-scribed in this principle, indicate whether this duty is contained in any document of the Company.

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PrincipleCompliance

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The Board must perform certain key duties, such as:12. Principle (V.D.2).- Select, control; and when required, replace the

main executives, as well as determine their compensation.X

13. Principle (V.D.3).- Evaluate the compensation of the main exe-cutives and of members of the Board of Directors, guaranteeing that the procedure followed to choose directors is formal and transparent.

X

a. If the Board of Directors of the company is responsible for the duties described in this principle, indicate whether the functions described in this principle are regulated in any document of the Company.

About Principle (V.D.2)

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b. Indicate the body responsible for:

Function Board of Directors

GeneralManager Others

Hire and replace the General Manager (X) (...)

Hire and replace the management (X) (...)

Determine the remuneration of main executives (X) (...)

Evaluate the remuneration of main executives (X) (...)

Evaluate the remuneration of the Directors (...) (...)General

Meeting of Shareholders

c. Indicate whether the company has internal policies or procedures de-fined for the following:

15YEARS


Policies for: YES NOHire and replace main executives (X) ( )Determine the remuneration of main executives (X) ( )Evaluate the remuneration of main executives (X) ( )Evaluate the remuneration of the Directors (X) ( )Appoint Directors (X) ( )

d. If the answer to one or more of the previous questions is affirmative, please indicate if such procedures are regulated in any document of the COMPANY.

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(X) (X) (...) (X) Bylaws, Board of Directors’ Regulation, Committees of the Board’s Regulations and internal policies.

PrincipleCompliance

0 1 2 3 4

14. The Board of Directors must carry out certain key duties, such as:Principle (V.D.4).- Perform a follow up and control of any possible conflicts of interest between Management, members of the Board of Directors and the shareholders, including the fraudulent use of the company’s assets and abuse in transactions between interested parties.

X

a. If the company’s Board of Directors is responsible for the function de-scribed in this principle, indicate whether or not this function of the Board of Directors is contained in any document of the company.

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(...) (X) (...) (X) Board of Directors’ Regulations and Internal Rules of Conduct.

b. Indicate the number of cases of conflicts of interest that have been the subject matter of discussion by the Board of Directors during the fiscal year of this report.

Number 0

c. Indicate whether the company or its Board of Directors has a Code of Ethics or similar document (s) regulating any conflicts of interest which may possibly arise.

(X) YES (...) NO

If yes, please indicate the exact name of the document:

15YEARS


Boards of Directors’ Regulations and Internal Rules of Conduct

d. Please specify any pre-established procedures in place to approve trans-actions carried out between related parties.

CAVALI has a Transaction Management Policy between related parties, which establishes that all transactions with related parties exceeding 10% of the annual budget established for the expenditure in consultancy will be submitted by the Internal Audit Department to the approval of the Audit Committee. The amount indicated can be considered for only one operation or for an subtotal of three months. In case the transaction does not exceed such amount, the Internal Audit Department must be informed in order to register the transaction in the “Registry of Transactions”, which is part of said policy.

PrincipleCompliance

0 1 2 3 4

15. The Board of Directors must perform certain key duties, such as:Principle (V.D.5).- Ensure the integrity the company’s accounting sys-tems and financial statements, including an independent audit, and the existence of adequate control systems, particularly of financial and non-financial and law compliance control systems.

X

a. If the company’s Board of Directors is responsible for the function de-scribed in this principle, indicate whether or not this function of the Board of Directors is contained in any document of the company.

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b. Indicate whether the company has a financial and non-financial risks control system.

(X) YES (...) NO

c. Indicate whether the aforementioned control system is regulated in any document (s) of the company.

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(X) (X) (X) (...) Bylaws, Board of Directors’ Regulations, Risk Committee Regulations and Functions Manual.

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PrincipleCompliance

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16. The Board of Directors must perform certain key duties, such as:Principle (V.D.6).- Supervise the effectiveness of the governan-ce practices according to which it operates, making changes as they may become necessary.

X

a. Is the company’s Board of Directors responsible for the duty described in this principle?

(X) YES (...) NO

b. Indicate any pre-established procedures in place to supervise the effec-tiveness of governance practices, specifying the number of evaluations conducted during the period.

Board of Directors reviews the reports submitted by the heads of every area of the company and by the directors’ committees, controlling and monitoring each and all of the company’s business and activities.

During this term, 14 meetings of the Board of Directors have been held with the corresponding review of the governance practices carried out by the company’s administrators.

The Board of Directors’ Regulation set forth that such body shall be responsible for:

a. Representing, governing, overseeing, and evaluating CAVALI’s manage-ment.

b. Guiding and executing the actions required to attain the purpose of the corporation.

c. Safeguarding the development, growth, and success of CAVALI. d. Reviewing and adopting the Company’s strategic plan, as well as its

long-term policies. e. Defining the Company’s leadership. f. Overseeing the execution of the Company’s activities to evaluate if

these are managed appropriately. g. Ensuring the compliance of the communication and information policy

with the shareholders and all stakeholders.h. Protecting the interests of all shareholders and balancing these with

those of the market.

Also, this Regulation establishes that the Board of Directors shall elaborate an annual schedule of the meetings, which shall be delivered at the beginning of the year to all members and management. These schedules should include at least the dates of the meetings and the ordinary items to be reviewed in each meeting, as follows:

• StrategicPlanning• SeniorManagementVariableCompensationPolicy.• CorporateGovernanceStrategy.• SeniorManagementSuccessionPlanning.• CompleteandtimelyCommunicationStrategywithshareholders.

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c. Indicate whether the procedures described above are regulated in any document of the Company.

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PrincipleCompliance

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17. The Board of Directors must perform certain key duties, such as: Principle (V.D.7).- Supervising information policy

X

a. If the Board of Directors of the company is responsible for the functions described in this principle, indicate whether this function of the Board of Directors is contained in any document of the Company.

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(X ) (X) (...) ( ) Bylaws and Board of Directors’ Regulations

b. Indicate the company’s information disclosure and dissemination policy to investors.

CAVALI discloses information through Relevant facts, following provisions of the regulations in force. The company’s shareholders have the possibility to access documents by writing an e-mail to [email protected] which is included in the company’s webpage.

c. Indicate whether the policy described above is contained in any docu-ment of the Company.

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(…) (...) (...) (...) Information Policy and Website

PrincipleCompliance

0 1 2 3 418. Principle (V.E.1).- The Board of Directors may form special bod-

ies in accordance with the needs and dimension of the company, especially those which are to perform auditing tasks. Furthermore, these special bodies may deal, among others, with functions such as appointment, compensation, control and plan-ning.Such special bodies will be configured within the Board of Direc-tors as support mechanisms.These must be preferably comprised of independent directors, so they can make impartial decisions in matters where there may be conflicts of interest.

x

15YEARS


a. If yes, please provide the following information about each Board of Di-rectors committee that the company may have

GOOD CORPORATE GOVERNANCE AND DEVELOPMENT COMMITTEE

i. Creation date: April 18, 2006ii. Tasks:

a. Achieving greater efficiency, effectiveness, transparency, and indepen-dence of the Board and its governing bodies.

b. Strive for the highest quality in the performance of the managerial team and its alignment with the vision and strategies of CAVALI.

c. Provide support and recommendations to the Board on issues related to strategic planning; appointment, evaluation, policies, and compensation and accountability plans for the directors; appointment and compensa-tion of the executives; collective performance of the company; transac-tions with related parties; relevant operations and management of con-flicts of interest, among others.

d. Perform the annual Corporate Governance report which includes:• Thebreakdownofcorporateinformation.• Thedividendspolicy,includinghistoricalinformationonthetotaldivi-

dends paid.• Themanagementstructureofthecompany.• Information on the relationships and conflicts of interest encoun-

tered by the Company and any potential ones.• Guidingprinciplesofthecompanyinmattersofcorporategovernance

and substantiating documents.• CorporateGovernanceagreementsadoptedduringtheyear.• Compliancewiththemeasuressetforthinthecorporategovernance

principles, recommendations and explanation of the lack of compli-ance or partial compliance of such.

e. Carry out a review of the policies and improvement programs, accord-ing to the principles of Corporate Governance adopted and supported by corporate documents and the recommendations of the annual report.

f. Coordinate the selection process of independent directors. The Commit-tee may engage the services of a consulting company in human resourc-es for the selection of candidates, according to article 31 of the bylaws.

g. To propose and implement the induction program for new board mem-bers.

h. To assist the Board in the compliance of its oversight responsibilities in the financial reporting process, the system of internal control over finan-cial reports and the audit process.

i. Monitor and evaluate the duties and responsibilities of the administra-tion according to the reports issued by the Internal Audit Area, External Auditors and/or the Head of Internal Control, and any other requested to the Administration.

j. Ensure the implementation of the plans and the appropriate organiza-tional structure of the audit or internal control activity, ensuring that there are no unjustified restrictions or limitations to conduct of its ac-tivities.

15YEARS


k. Monitor the activities of the Internal Audit and External Auditors area.l. To follow up the main issues reported by the Internal Audit area, the ex-

ternal auditor and other external advisors until they have been satisfac-torily addressed.

m. Report to the entire Board any and all significant matter relating to the control processes of the organization, including the information tech-nology security and control.

n. Conduct or authorize investigations on any matter within its scope of responsibility.

iii. Main organizational and operational rules:

This Committee shall necessarily be formed by of Board members.According to Article III of the Board Committees Regulations, the directors par-ticipating in the Corporate Governance and Development Committee shall have the following skills:

a. Knowledge and technical expertise in the implementation of the ap-pointment and compensation policies, benefits, wages and benefits.

b. Knowledge and experience in activities related to human resources and corporate governance.

c. Able to work in teams and appreciate this effort rather than individual performance.

d. Respect the work of others and be capable of communicating, persuad-ing, and lead.

iv. Members of the Committees

Board of Directors 2010-2013:

Full Name Date

Position in committeeStart End

Rafael Alcázar Uzátegui 05/04/2010 Present Chairman

José Antonio Blanco Cáceres 17/06/2008 Present Member

Hernán Ricardo Bastías Parraguez 05/04/2010 Present Member

José Fernando Romero Tapia 05/04/2010 Present Member

v. Number of meetings held during the fiscal period: 8 7

vi. Are there powers delegated in accordance with article 174 of the general corporations act?

(X) YES (...) No

15YEARS


AUDIT COMMITTEE

i. Creation date: April 18, 2006 ii. Tasks:

It is responsible for overseeing:

a. The financial statements integrity and the financial reporting process of CAVALI SA I.C.L.V.;

b. The implementation and monitoring of the company’s internal control system;

c. The annual audit of financial statements of CAVALI SA I.C.L.V., as well as the assessment, assignment, performance and independence of the ex-ternal auditor;

d. The periodical evaluation of the activities of the Internal Audit Manage-ment;

e. The proper compliance of the requirements and relevant legal and regu-latory provisions.

Independently from the responsibilities and powers that this Committee has, the Committee shall also have the obligation of approving the Strate-gic Plan and the annual internal audit program of the company.

iii. Main rules of organization and operation:

This Committee shall be necessarily formed by members of the Board of Directors and by the relevant officers deemed necessary by the Board of Directors.

Article 5 of the Board Committee Regulations set forth that directors par-taking in the Audit Committee shall have the following skills:

a. Have in-depth knowledge of CAVALI’s area of action. b. Have knowledge on the administrative aspects of the Central Secu-

rity Depositories and of specific activities performed by CAVALI, in-cluding: • Main Company risks, including those undertaken in off-balance

sheet activities; • ImplementationandmonitoringofanadequateInternalandExter-

nal Audit programs, and Internal Control and Information System. c. Overall accounting and financial matters, as well as the handling third

parties (“stock markets”) accounts. d. Have experience or professional knowledge on and be diligent in the

development of their duties and taking of decisions independently.e. Having an ethical conduct.

15YEARS


iv. Members of the Committee:

Board 2010-2013

Full Name Date Position in the

CommitteeStart EndHernán Bastías Parraguez 18/04/2006 Present ChairmanJosé Antonio Blanco Cáceres 05/04/2010 Present MemberAlejandro José Roberto Bazo Bertrán 05/04/2010 Present Member

Carlos Enrique Olivera Niño de Guzmán 16/06/2010 Present Member

Walter Martín Palmer Bardales 15/05/2012 Present Chairman

v. Number of meetings held during the fiscal year: 6

vi. Are there powers delegated in accordance with Article 174 of the General Corporations Act? (X) YES (...)

NO

INVESTMENT AND SETTLEMENT FUND MANAGEMENT COMMITTEE

i. Creation date: March 23, 2006

ii. Tasks:

a. Administrating the Settlement Fund resources appropriately.

b. Controlling the reimbursements of the Settlement Fund. c. Reporting to the Board of Directors and the General Management on the

use of the Settlement Fund.d. Investment Policy of the Settlement Fund. e. Verifying the execution of the Settlement Fund purpose. f. Evaluating and monitoring the main risks associated to the counter-

party’s non-compliance in settlement activities performed in CAVALI SA ICLV, which the participants face.

iii. Main rules of organization and operation:

The members should have the following skills and capacities:

a) Informed judgment: Have an in-depth knowledge of the sector where CAVALI SA ICLV acts, to understand and question the assumptions that serve as basis for its plans and strategies;

b) Collaboration and teamwork: Able to work in teams and appreciate this effort rather than individual performance. Respect the work of others and be capable of communicating, persuading, and leading;

c) Theoretical and practical knowledge: Have knowledge on the adminis-tration of Settlement Funds and of CAVALI SA I.C.L.V.’s specific activities;

d) Professionalism: Be professional, knowledgeable, and diligent in the development of their duties and capable of taking decisions indepen-dently;

e) Commitment: To be a model and promoter of ethical behaviors as well as to be committed to the achievement of the company’s objectives;

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f) Proven experience: To have a successful professional career and have participated in the development of investment projects; And, at least, one of them must have:

g) Independence: To have freedom and an objective judgment, moral val-ues, and integrity to freely give an opinion, establishing the appropriate limits.

iv. Members of the

Board 2010-2013

Full Name Date Position in the

CommitteeStart End

Carlos Enrique Olivera Niño de Guzmán 23/03/2006 Present Chairman

Alejandro José Roberto Bazo Bertrán 05/04/2010 01/23/2012 Member

Manuel José Marcos Bustamante Letts 05/04/2010 Present Member

José Fernando Romero Tapia 29/02/2012 Present Member

Hernán Bastías Parraguez 05/04/2010 Present Member

Victor Sanchez Azañero 23/06/2006 Present Member

Lucy María Rodríguez Palomino 05/04/2010 Present Member

v. Number of meetings held during the fiscal year: 6

vi. Are there powers delegated in accordance with Article 174 of the General Corporations Act? (X) Yes (...)

No

Principle Compliance0 1 2 3 4

19. Principle (V.E.3).- The number of members of a company’s Board of Directors must guarantee plurality of opinion within this body, so that all decisions made thereby are the result of an ap-propriate deliberation, always in observance of the best interest of the company and shareholders.

X

a. Please include the following information corresponding to the directors of the company during the fiscal year of this report.

Full Name Profession Date Shareholding

Start End Nº of stock

Share (%)

José Antonio Blanco Cáceres Manager 4/5/2010 Up to this

date N/A N/A

Hernán Ricardo Bastías Parraguez Accountant 3/23/2006 Up to this

date N/A N/A

Rafael Alcázar Uzátegui Lawyer 4/5/2010 Up to this

date N/A N/A

Alejandro José Roberto Bazo Bertrán (*) Economist 4/5/2010 Up to this

date N/A N/A

Manuel José Marcos Bustamante Letts Lawyer 4/5/2010 Up to this

date N/A N/A

Carlos Enrique Olivera Niño de Guzmán Economist 5/15/2001 Up to this

date N/A N/A

José Fernando Romero Tapia (*) Economist 3/31/2008 Up to this

date N/A N/A

Walter Martín Palmer Bardales (*) Economist 4/2/2012 Up to this

date N/A N/A

(*) Legal Representative or proxy of a shareholder holding 5% or more of the corporate stock capital.

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PrincipleCompliance

0 1 2 3 4

20. Principle (V. F, second paragraph).- Information associated with the items to be dealt with in each meeting must be made availa-ble to directors with enough lead, so they can review it, unless these are strategic matters requiring confidentiality, in which case, mechanisms ought to be set forth to allow directors to adequately evaluate such matters.

X

a. How is the information relative to matters to be dealt with in each board of directors’ meeting forwarded to directors?

(X) E-MAIL (...) MAILING ADDRESS (X) OTHER. Detailed information is physically forwarded to their

corporate domiciles. (…) DIRECTLY COLLECTED AT THE OFFICE

b. How many days ahead of time do company directors have access to the information relating to the matters to be dealt with in a meeting?

Less than three days From 3 to 5 days More than 5 days

Non confidential information (...) (X) (...)

Confidential information (X) ( ) (...)

c. Indicate whether the procedure established for directors to analyze in-formation treated as confidential is regulated in any document (s) of the company.

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(...) ( ) (...) (...) The company does have a procedure in place, but it is not regulated

PrincipleCompliance

0 1 2 3 4

21. Principle (V. F, third paragraph).- Following clearly established and well-defined policies, the Board of Directors decides on the hiring of specialized advisory services needed by the company for appropriate decision making.

X

a. Indicate the pre-established policies in place concerning the hiring of specialized advisory services by the Board of Directors or the directors.

Directors make decisions about hiring external specialized advisory servic-es based on reports and proposals prepared by management and deputy management offices of the company.

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In addition, pursuant to Article 18 of the Internal Board of Directors’ Regula-tion, the Board of Directors has the attribution of hiring independent con-sultants whenever deemed convenient to count with an expert opinion to make certain decisions, and in general, to fully work according to its attribu-tions. Likewise, Article 24 of same regulation establishes that a permanent item of its annual budget must be assigned to the Board of Directors for hiring independent consultants whenever deemed convenient.

b. Please, indicate whether the policies described above are regulated in any document(s) of the company.

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(X) (X) (...) (...) Board of Director’s Regulation

c. Indicate the list of the specialized advisors to the Board of Directors that have provided services in the decision-making process of the COMPANY during the period of this report.

During 2012, in coordination with the Legal Area of the company, the exter-nal law firm Estudio Rodrigo, Elías & Medrano was hired.

PrincipleCompliance

0 1 2 3 422. Principle (V.H.1) .- The new directors must be instructed as to

their faculties and duties, as well as on the characteristics and organizational structure of the company.

X

a. In case the Company has induction programs for new directors, please indicate if such programs are regulated by which Company document.

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(...) (X) (...) (...) Board of Directors Regulation Board of Directors Training Policy

PrincipleCompliance

0 1 2 3 4

23. Principle (V.H.1) .- Procedures must be established for the Board of Directors to follow when appointing one or more alternate members in the event that there are no alternate directors and there is one or more vacancies requiring to fill the prescribed number of directors for the remainder of the term, and there are no provisions in the corporate bylaws for a different procedure to be followed.

X

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a. If the company has director induction programs in place, indicate wheth-er or not such programs are regulated in any document (s) of the com-pany?

(X) YES ( ) NO

b. Indicate the pre-set procedures to elect the replacement of any director vacancy.

The Board of Directors shall provisionally fill in for any vacancy that may hap-pen and shall provide for and resolve any unforeseen situation. SMV (Securities Market Supervisor) shall be informed, within the term provided, on any vacancy that may occur and the person(s) appointed to fill in, so as to inform the Issuers with securities registered in the Public Registry of the Securities Market.

If there are a number of vacancies that impedes the valid summoning of the Board of Directors, qualified directors shall temporarily assume the administra-tion and immediately convene the General Meeting of Shareholders to elect a new Board of Directors. In case of failing to call the meeting, or if all directors vacate their position, the General Manager shall immediately make such call.

If they reach to the decision of ratifying or removing a Board member, then a re-quest to the General Meeting of Shareholders shall be sent stating the reasons. If approved, the General Meeting of Shareholders shall be called to proceed with the corresponding ratification or removal.

In case of permanent absence of any member of the Board of Directors, either through death, separation, retirement or any other cause, the General Meeting of Shareholders shall make the corresponding appointment.

c. Please indicate if the procedures described hereinabove are contained in any document of the Company.

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PrincipleCompliance

0 1 2 3 424. Principle (V. I, first paragraph).- Duties of the Chairman of the

Board of Director, or Executive President, if applicable, as well as, General Manager, must be clearly defined in the company’s bylaws or internal regulation in order to avoid duplicity of duties and potential conflicts.

X

25. Principle (V. I, second paragraph).- The company’s organic struc-ture must avoid the concentration of duties, attributions and responsibilities on the Chairman of the Board of Directors, Ex-ecutive President - if applicable -, General Manager and other officers holding managerial positions.

X

a. In case any of the above holds true, indicate whether the responsibilities of the Chairman of the Board of Directors; of the Executive President, if

15YEARS


applicable; of the General Manager, and of any other officers at a mana-gement level are regulated in any document (s) of the company.

Responsibilities of By

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Chairman (X) (X) (…) (…) Bylaws and Board of Directors’ Regulations (…) (...)

Chief Executive Officer (…) (…) (…) (…) (…) (X)

General Manager (X) (…) (X) (…) Bylaws and Functions Manual (...) (...)

Management (…) (…) (X) (…) Functions Manual (…) (...)

PrincipleCompliance

0 1 2 3 426. Principle (V.I.5).- It is advisable for Management to be given at

least part of its compensation based on the company’s results, so as to ensure compliance with its purpose of maximizing the value of the company in favor of the shareholders.

X

a. Concerning management bonus policy, please indicate how such bonu-ses are granted.

(...) IN THE FORM OF SHARES (...) IN THE FORM OF OPTIONS (X) IN CASH (...) OTHERS, GIVE DETAILS (...) NOT APPLICABLE.

b. Indicate whether compensation (excluding bonuses) given to the Gene-ral Manager and the management team is provided:

Fixed compensation Variable compensation Compensation (%)

General Manager (X) (N/A)7.00%

Management (X) (N/A)

* This percentage represents the total amount of annual remunerations of management staff members and of the general manager in relation to the gross income level, according to the fi-nancial statements of the COMPANY.

c. Indicate whether the company has established any form of guaranties or similar in case of the termination of the General Manager and/or man-agement team.

(X) YES (...) NO

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II. SECTION TWO: ADDITIONAL INFORMATION

Shareholder’s rights

a. Indicate the methods used to communicate to the new shareholders their rights and the manner in which they may exercise them.

(X) ELECTRONIC MAIL (X) DIRECTLY WITHIN THE COMPANY (...) TELEPHONE (X) WEBSITE (..) MAILING ADDRESS (X) OTHER DETAIL: Important Notices and Communications (...) NOT APPLY.

The company’s website includes information on its operations and the full texts of the bylaws, and the regulations of the general meeting of share-holders, of the Board of Directors, and of the Committees. These docu-ments contain the shareholders’ rights in the company.

The shareholders of the company can receive information to learn more about their rights by sending an e-email to: [email protected].

b. Indicate whether shareholders have access - during meetings – to the points to be dealt with in the agenda and the respective hard-copy sup-porting documents.

(X) YES (...) NO

c. Indicate the person or body of the company responsible for performing the follow up on any resolutions adopted in shareholders’ meetings. If an individual is responsible, also indicate position and area in which he works.

Responsible Area General Manager

Responsible PersonFull Name Position Area

Victor Sánchez Azañero General Manager General Management

d. Indicate whether the information referring to company shareholders is at:

( ) The company (X) A clearing and Settlement Institution

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The information is recorded in our Bookkeeping system which we manage as an ICLV entity.

e. Indicate the frequency in which the company updates information relat-ing to shareholders appearing in the share register.

Participants that custody CAVALI’s shareholders are responsible for periodically updating the information periodically.

f. Please specify the company’s dividends policy applicable to the fiscal year of this report.

Date of Approval March 23, 2006Approval Body General Meeting of Shareholders

Dividends Policy(Profit distribution criteria)

Annual distribution of at least 20% of available net profits obtained during the fiscal year, if any. The payment of interim dividends corresponding to the fiscal year is allowed.

g. Indicate, if applicable, all cash and stock dividends distributed by the company in the fiscal year of this report and during the previous.

Delivery dateDividend per share

In cash In shares

Type: Common Shares

Fiscal year 2012 0.1479 N/A

Fiscal year 2011 0.18 095

Board of Directors

a. Concerning the company’s Board of Directors’ meetings held during the fiscal year of this report, please provide the following information:

Number of meetings held: 14Number of meetings in which one or more directors were represented by deputy orAlternate directors

0

Number of principal directors represented at least once 0

b. Please specify the types of bonuses given to the Board of Directors for meeting the company’s goals.

(X) NOT APPLICABLE. THE COMPANY DOES NOT HAVE BONUS PLANS FOR DIRECTORS

c. Indicate whether the types of bonuses described above are regulated in any document of the Company.

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(...) (...) (...) (...)

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(x) NOT APPLICABLE

d. Indicate the percentage represented by the total amount of annual com-pensation provided to directors, with respect to gross income, according to the company’s financial statements.

Total Compensation (%)

Independent Directors (0.14%)

Dependent Directors (0.86%)

e. Indicate if any of the Board’s discussions regarding management perfor-mance was held in the absence of the General Manager.

(X) YES (...) NO

Shareholders and holdings

f. Please specify the number of shareholders with voting rights, share-holders without voting rights (if applicable) and the number of holders of investment shares (if applicable) of the company existing at the year-end of the fiscal year of this report.

Types of shares(Including investment shares)

Number of holders(As of the year-end of the fy)

Shares with Voting Rights 112Shares without Voting Rights 0Investment Shares 0Total 112

g. Indicate the following information about shareholders and holders of investment stock with an ownership interest of more than 5% as of the year-end of the fiscal year of this report.

Type of Shares: Common

Name Number of shares Share (%) Nationality

Bolsa de Valores de Lima 10,397,773 40.00% Peruvian

Negocios Contactos y Finanzas – Inversión S.A.

2,599,440 10.00% Peruvian

Scotia Bolsa 1,299,534 5% Peruvian

Others

h. Indicate whether the company has any internal regulation in place with regard to conduct or similar, dealing with ethical and professional liabil-ity criteria.

15YEARS


(X) YES (...) NO

If yes, please indicate the exact name of the document:

Internal Rules of Conduct

i. Is there a register of cases of non-compliance with regulations referred to hereinabove in Item a)?

(X) YES (...) NO

j. If yes, please identify the individual or body responsible for keeping such register.

Responsible Area Human Resources

Person responsibleFull name Position Area

Lucy Rodriguez Administration and Account Deputy Manager

Administration and Finance Management

k. For all documents (Bylaws, Internal Regulation, Manual and other docu-ments) mentioned in this report, please provide the following informa-tion:

Name of the document Approving body Date of approval

Date of last amendment

Bylaws General Meeting of Shareholders 30/04/1997 26/03/2011

Internal Rules of Conduct Board of Directors 31-12-2004 21/11/2012

Internal Regulations SMV 01/12/ 2002 06/11/2012

Information Security Policy Board of Directors 20/09/2005 12/02/2008

Functions Manual General Management 2003 2010

Board of Directors Induction Policy Board of Directors 21/11/2012 --

Dividends Policy General Meeting of Shareholders 23/03/2006 --

Manual for the Prevention of Money Laundering and Financing of Terrorist Crimes

Board of Directors 2004 September

2012

Independent Auditor Selection Policy

Board of Directors 21-06-2005 --

Board of Director’s Regulations General Meeting of Shareholders 19-12-2012 --

General Meeting of Shareholders’ Regulations

General Meeting of Shareholders 30-11-2009 --

Policy of Conflict of Interest Board of Directors 21-11-2012

Policy of Transactions of Board of Directors 19-12-2012

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F I N A N C I A L S TAT E M E N T S / ANNUAL REPORT 2012 Indice86

FINANCIAL STATEMENTS CAVALI S.A. I.C.L.V. 15YEARS

Financial statements as of December 31, 2012 and 2011 together with the independent auditors’ report

CONTENT

> Independent auditors’ report

> Financial statements

> Statement of financial position> Statement of comprehensive income> Statement of changes in shareholders’ equity> Statement of cash flows> Notes to the financial statements

15YEARS

F I N A N C I A L S TAT E M E N T S / ANNUAL REPORT 2012 Index87

Independent Auditors’ report

To the Shareholders and Directors of Cavali S.A. I.C.L.V.

Report on the Financial Statements

We have audited the accompanying financial statements of Cavali S.A. I.C.L.V. (a Peruvian company), which comprise the statement of financial position as of December 31, 2012, and the corresponding statement of comprehensive income, statement of changes in shareholders’ equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for the internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing

standards in Peru. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Cavali S.A. I.C.L.V. as of December 31, 2012, and its financial performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards.

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Other Matters

The financial statements as of December 31, 2011 and for the year then ended, and statement of financial position as of December 31, 2010 (January 1, 2011), before conversion adjustments to International Financial Reporting Standards, which are presented in note 2.2, were audited by other independent auditors, whose report dated February 29, 2012 expressed an unqualified opinion.

As part of our audit of the financial statements of 2012, we have also audited the conversion adjustments to International Financial Reporting Standards that have been included in the financial statements of 2011 and in the statement of financial position of 2010, which are presented in note 2.2. In our opinion, such adjustments are reasonable and properly recognized. We were not engaged to audit, review or apply any audit procedure to the financial statements of 2011 and 2010 of the Company, other than those referred to conversion adjustments and, accordingly, we do not express any audit opinion on the financial statements of 2011 and 2010 taken as a whole.

Report on Other Legal and Regulatory Requirements

Our audit was conducted with the purpose of forming an opinion on the financial statements taken as a whole. Information related to memorandum accounts of stock funds (note 24) and securities (note 25) is shown in compliance with the requirements of the Peruvian Superintendence of the Securities Market, and it is not necessary for a complete presentation of basic financial statements. Such information has been subjected to audit procedures applied to basic financial statements. Based on

our review, we have identified no significant issues amending the aforementioned information related to the financial statements of Cavali S.A. I.C.L.V. as of December 31, 2012 taken as a whole and, in general, this information complies with the regulations established by the Superintendence of the Securities Market.

Lima, PeruFebruary 8, 2013

Countersigned by:

__________________________Wilfredo RubiñosC.P.C.C. Register N° 9943

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Note 2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Assets

Current assetsCash and cash equivalent 4(a) 955 1,027 3,406

Term deposits 4(b) 9,301 12,977 7,425

Restricted funds 4(c) 2,577 2,745 2,240

Held-to-maturity investments 5 881 1,128 2,791

Trade accounts receivable, net 6 8,920 2,700 4,689

Other accounts receivable 7 1,249 912 684

Prepaid expenses 799 385 305

Total current assets 24,682 21,874 21,540

Restricted Funds 4(c) 103 1,343 2,583

Investment in associates 8 6,990 5,055 2,675

Other financial investment 12 12 12

Investment property, net 9 2,257 2,289 2,321

Property, furniture and equipment, net 10 7,575 7,739 7,893

Intangible assets, net 11 10,126 11,120 11,533

Total assets 51,745 49,432 48,557

Off-balance sheet accouns of stock funds 24 363,407 214,965 210,704

Off-balance sheet accouns of securities 25 158,027,612 146,346,769 111,938,793

Note 2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Liabilities and shareholders’ equity

Current liabilitiesTrade accounts payable 754 313 134

Financial obligations 13 1,013 955 901

Taxes payable 14 1,954 1,281 2,634

Other accounts payable 15 1,799 2,023 1,749

Total current liabilty pasivo corriente 5,520 4,572 5,418

Deferred income tax liability, net 12 2,889 1,944 995

Long-term financial obligations 13 87 1,100 2,055

Total liabilities 8,496 7,616 8,468

Shareholders’ equity 16

Capital stock 25,994 25,994 25,994

Legal reserve 5,199 5,052 4,054

Retained earnings 12,056 10,770 10,041

Total Shareholders’ equity 43,249 41,816 40,089

Total liability and Shareholders’ equity 51,745 49,432 48,557

Off-balance sheet accouns of stock funds 24 363,407 214,965 210,704

Off-balance sheet accouns of securities 25 158,027,612 146,346,769 111,938,793

Statement of financial position As of December 31, 2012, 2011 and as of January 1, 2011

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Note 2012 2011

S/.(000) S/.(000)

Operating income 17 28,040 31,697

Operating costs 18 (19,088) (16,665)

Gross profit 8,952 15,032

Miscellaneous income 986 848

Miscellaneous expenses - (183)

986 665

Operating profit 9,938 15,697

Other income (expenses):

Financial income 19 2,315 2,026

FInancial expenses (123) (149)

Exchange difference, net 3 (151) (161)

Equity income from investment in associates 8 1,888 2,319

3,929 4,035

Profit before income tax 13,867 19,732

Income tax 12 (4,253) (5,993)

Net profit 9,614 13,739

Other comprehensive income - -

Total comprehensive income of the year 9,614 13,739

Basic and diluted earnings per common share (in nuevos soles) 22 0.37 0.53

Weighted average number of common shares outstanding 22 25,994,432 25,994,432

Statement of comprehensive income For the years ended December 31, 2012 and 2011

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Statement of changes in shareholders’ equity For the years ended December 31, 2012 and 2011

Capital Stock Legal Reserve Retained Earings Total

S/.(000) S/.(000) S/.(000) S/.(000)

Balances as of January 1, 2011, see note 2.2 (b) 25,994 4,054 10,041 40,089

Net profit - - 13,739 13,739

Declared and paid dividends - - (7,378) (7,378)

Advancement of dividends - - (4,701) (4,701)

Adjustement - - 67 67

Transfer to legal reserve - 998 (998) -

Balances as of December 31, 2011 25,994 5,052 10,770 41,816

Net profit - - 9,614 9,614

Dividends declared and paid - - (6,371) (6,371)

Advancement of dividends - - (1,777) (1,777)

Adjustement - - (33) (33)

Transfer to legal reserve - 147 (147) -

Balances as of December 31, 2012 25,994 5,199 12,056 43,249

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Statement of cash flows For the years ended December 31, 2012 and 2011

2012 2011S/.(000) S/.(000)

Operating activities:Collections by from:Income received 27,455 39,361Other cash collections related to operating activities 7,380 194Less payments of:Suppliers of goods and services (7,906) (1,720)Remuneration and social benefits (10,873) (8,883)Income tax (5,798) (11,184)Other cash payments related to operating activities (574) (7,257)Net cash and cash equivalent provided by operating activities 9,684 10,511Investment activities:Purchase of financial investments (5,178) (11,154)Sale of financial investments 5,349 12,574Purchase of furniture and equipment (325) (321)Purchase of intangible assets (499) (1,009)Net cash and cash equivalent (used in) provided by investment activities (653) 90Financing activitiesDividends paid (8,148) (12,079)Amortization of financial obligations (955) (901)Net cash and cash equivalent used in financing activities (9,103) (12,980)Net decrease in cash and cash equivalent (72) (2,379)Cash and cash equivalents at the beginning of the year 1,027 3,406Cash and cash equivalents at year-end 955 1,027

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Notes to the financial statementsAs of December 31 of 2012 and 2011

1. Economic Activity

Cavali S.A. I.C.L.V. (hereinafter “the Company”) is a Peruvian corporation incorporated on April 30, 1997 in the city of Lima. The Company’s address is Santo Toribio Av. N°143, Office N°501, San Isidro, Lima, Peru.

The Company’s main business activity is the service of registration, transfer and custody of securities by notations on account, and the clearing and settlement of transactions traded or not in centralized trading mechanisms.

Due to its economic activity, Company resources constitute the remuneration for settlement of transactions and issuance paid by participants and users of their services. These payments correspond to a percentage or a fixed rate on the purchase and sale of securities. The tariffs are the remuneration that the Company receives for services provided to users and are approved by the Superintendence of the Securities Market - SMV for its acronym in Spanish (formerly National Supervisory Commission for Companies and Securities – CONASEV for its acronym in Spanish), the approval of tariffs by the SMV has effect from the effective date of the Resolution or Office approval.

Regulatory Framework

The Company operates and provides the services described in its rules and procedures in accordance with the provisions of the Securities Market Law and supplementary rules, Regulation of Institutions Securities Clearing and Settlement, the relevant internal rules and related provisions and in general, all other rules governing its operation and its contracts.

The text of the Securities Market Law, approved by Supreme Decree N°093-2002-EF and its amendments, promotes the orderly and transparent securities market development, as well as appropriate investor protection; and the Rule for Securities Clearing and Settlement Entities, approved by CONASEV Resolution N°031-99-EF/94.10, and its amendments, establishes the standards that shall govern the Company.

Approval of the Financial Statements

The Company’s financial statements as of December 31, 2011, prepared in accordance with generally accepted accounting principles in Peru, have been approved by the Shareholders’ Meeting held on March 26, 2012. The financial statements as of December 31, 2012 and changes in the financial statements of 2011 to adopt International Financial Reporting Standards (hereinafter “IFRS”) have been approved by the Investment and Administration Committee of the Settlement Fund for issuance on February 22, 2013, and will be presented for the approval of the Board of Directors and the Shareholders. In Management’s opinion, these accompanying financial statements will be approved without changes by the Shareholders.

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2. Basis of Preparation and Presentation, Accounting Principles and Practices

2.1. Basis of Preparation

The accompanying financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (hereinafter “IASB”) and in force as of December 31, 2012.

The financial statements for the year ended December 31, 2012 are the first financial statements to be prepared in accordance with IFRS. Note 2.2. includes the information on how the Company adopted IFRS for the first time in its financial statements. For all previous years and to the year ended December 31, 2011, the financial statements were prepared in accordance with generally accepted accounting principles in Peru.

The accompanying financial statements are presented in nuevos soles, its functional and presentation currency, except where noted otherwise.

2.2. First-time Adoption of IFRS

As part of IFRS first-time adoption process in Peru, on October 14, 2010, through Resolution N° 102-2010-EF/94.01.1, the SMV required to all legal entities under its supervision to adopt IFRS, in the Company’s case, since the year 2012.

In order to comply with Peruvian legislation, the Company has adopted IFRS since the year 2012. The standards are applied retrospectively at the transition date and all the

adjustment to convert the assets and liabilities maintained under generally accepted accounting principles in Peru to IFRS are recorded against “Retained earnings” caption, less some exemptions indicated in IFRS 1.

In the preparation of these financial statements under IFRS, the Company has considered January 1, 2011 as transition date and, in consequence, the Company has restated the information of that year in accordance with IFRS. The exemptions indicated in IFRS 1 that the Company has decided to apply in its IFRS first-time adoption process are related mainly to:

(i) Measurement of investment property and property , furniture and equipment: The Company has applied the exemption indicated in paragraph D5 of IFRS 1, using as deemed cost as of January 1, 2011 the fair value for the items land, buildings and other constructions, machinery and equipment, and investment property.

(ii) Measurement of investment in associate and subsidiary: The Company has applied the exemption indicated in paragraph D15 of IFRS 1, using as deemed cost as of January 1, 2011 the book value under generally accepted accounting principles in Peru which corresponded to the equity value of its associate as of such date, equivalent to S/.2,675,000.

The explanatory notes bring a detailed description of main differences between generally accepted accounting principles in Peru and IFRS applied by the Company, and their impact on the shareholders’ equity as of December 31, 2011 and January 1, 2011, and on the net profit for the year ended December 31, 2011.

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(a) Reconciliation of statement of financial position

(a.1) The reconciliation between the statement of financial position under generally accepted accounting principles in Peru and IFRS as of January 1, 2011 (transition date to IFRS) is presented as follows:

NotesBalances as of

01.01.2011Peru GAAP

Adjustments / Reclassifications

Balances as of01.01.2011

IFRS

S/.000 S/.000 S/.000

Assets

Current assets

Cash and cash equivalents e.i 15,654 (12,248) 3,406

Time deposits e.i - 7,425 7,425

Restricted funds e.i - 2,240 2,240

Held-to-maturity investments 2,791 - 2,791

Trade accounts receivable 4,689 - 4,689

Other accounts receivable 684 - 684

Prepaid expenses 305 - 305

Total current assets 24 (2,583) 21,540


Investment in associates 2,675 - 2,675

Other financial investment 12 - 12

Investment property, net e.ii 1,759 562 2,321

Property, furniture and equipment, net e.ii 6,076 1,817 7,893

Intangible assets, net 11,533 - 11,533

Total assets 46,178 2,379 48,557

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NotesBalances at 01.01.2011Peru GAAP


Balances at01.01.2011

IFRS

S/.000 S/.000 S/.000


Current liabilities

Trade accounts payable 134 - 134

Taxes payable 2,634 - 2,634

Financial obligations 901 - 901

Other accounts payable 1,749 - 1,749

Total current liabilties 5,418 - 5,418

Deferred income tax liability, net e.iii 281 714 995

Long-term financial obligations 2,055 - 2,055

Total liabilities 7,754 714 8,468

Shareholders’ equity

Capital stock 25,994 - 25,994

Legal reserve 4,054 - 4,054

Retained earnings e.iv 8,376 1,665 10,041


Total liabilities and Shareholders’ equity 46,178 2,379 48,557

(a.2) The reconciliation between the statement of financial position under generally accepted accounting principles in Peru and IFRS as of December 31, 2011 is presented as follows:

NotesBalances as of

31.12.2011Peru GAAP



IFRS

S/.000 S/.000 S/.000AssetsCurrent assets

Cash and cash equivalent e.i 18,092 (17,065) 1,027

Time deposits e.i - 12,977 12,977


Held-to-maturity investments 1,128 - 1,128

Trade accounts receivable, net 2,700 - 2,700

Other accounts receivable 912 - 912

Prepaid expenses 385 - 385

Total current assets 23,217 (1,343) 21,874


Investment in associates 5,055 - 5,055

Other financial investment 12 - 12

Investment property, net e.ii 1,702 587 2,289

Property, furniture and equipment, net e.ii 5,746 1,993 7,739

Intangible assets, net 11,120 - 11,120

Total assets 46,852 2,580 49,432

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NotesBalances at 31.12.2011Peru GAAP


Balances at31.12.2011

IFRSS/.000 S/.000 S/.000


Current liabilities

Financial obligations 955 - 955

Trade accounts payable 313 - 313

Taxes payable 1,281 - 1,281

Other accounts payable 2,023 - 2,023

Total current liabilties 4,572 - 4,572

Deferred income tax liability, net e.iii 1,230 714 1,944

Long-term financial obligations 1,100 - 1,100

Total liabilities 6,902 714 7,616

Shareholders’ equity

Capital stock 25,994 - 25,994

Legal reserve 5,052 - 5,052

Retained earnings e.iv 8,904 1,866 10,770


Total liabilities and Shareholders’ equity 46,852 2,580 49,432

(b) Reconciliation of statement of comprehensive income

The reconciliation between the statement of comprehensive income under generally accepted accounting principles in Peru and IFRS for the year ended December 31, 2011 is presented as follows:

NotesBalances as of

31.12.2011Peru GAAP



IFRS

S/.000 S/.000 S/.000

Operating income 31,697 - 31,697

Operating costs e.ii (16,866) 201 (16,665)

Gross profit 14,831 201 15,032

Miscellaneous income 848 - 848

Miscellaneous expenses (183) - (183)

Operating profit 15,496 201 15,697

Financial income 2,026 - 2,026

FInancial expenses (149) - (149)

Net exchange loss (161) - (161)

Participation in the results of investments in associates by equity method 2,319 - 2,319

Profit before income tax 19,531 201 19,732

Income tax (5,993) - (5,993)

Net profit 13,538 201 13,739

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(c) Reconciliation of Statement of Changes in Stockholders’ Equity

The reconciliation between the statement of changes in shareholders’ equity under generally accepted accounting principles in Peru and IFRS as of January 1, 2011 (transition date to IFRS) and December 31, 2011 is presented as following:

As of December 31, 2011

As of January 1, 2011

S/.(000) S/.(000)

Shareholders’ equity under Peruvian GAAP 39,950 38,424

More – Adjustments to retained earnings

Revaluation of property, furniture and equipment, net of tax effect 1,665 1,665

Less property, furniture and equipment depreciation 175 -

Less investment property depreciation 26

1,866 1,665

Stakeholders’ equity under NIIF 41,816 40,089

(d) Shareholders’ equity under IFRS

The IFRS adoption has no significant effects upon the reported cash flows generated by the Company; nevertheless, some insignificant movements in certain captions had occurred as a consequence of the conversion adjustments.

(e) Notes to the reconciliation of statement of financial position and statement of comprehensive income

Beginning balances Beginning balances are based on the financial statements in accordance with generally accepted accounting principles in Peru, which comprise the IFRS approved in Peru through Resolutions issued by the Peruvian Accounting Standards Board (hereinafter “CNC”) as of the date of financial statements’ issuance.

AdjustmentsThe IFRS adoption has required adjustments to balances of previous financial statements under generally accepted accounting principles in Peru. Main adjustments and reclassifications are the following:

(e.i) Cash and cash equivalentsAs a part of the IFRS first-time adoption process, the Company reviewed the presentation of cash and cash equivalent balances and established certain reclassifications for a more appropriate presentation of such captions in the financial statements.

(e.ii) Investment property, property, furniture and equipment, net As a part of the IFRS first-time adoption process, the Company elected to measure its investment property, property, furniture and equipment, specifically land and buildings and constructions captions, at fair value based on a valuation work performed by an independent appraiser and use this value as deemed cost in accordance with exemption permitted by IFRS 1.

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The Company also performed a cost analysis and componentization of main property, furniture and equipment items, reviewing residual values, useful lives and depreciation methods.

As a consequence, it was recorded an increase in the balance of investment property, property, furniture and equipment caption as of January 1, 2011 by S/.562,000 and S/.1,817,000 as IFRS transition adjustment with credit to Retained earnings caption within shareholders’ equity as of such date. The review of useful lives also led to an adjustment in 2011 depreciation by S/.201,000.

(e.iii) Deferred income tax liability The adjustment in Deferred income tax liability caption is mainly to the difference between tax basis and book balances of Company’s investment property, property, furniture and equipment and intangible assets, after recorded the IFRS first-time adoption adjustments, as detailed in paragraph (e.i) above.

(e.iv) Shareholders’ equity The adjustment in shareholders’ equity is mainly to the difference between asset and liability after recorded the IFRS first-time adoption adjustments, as detailed in this note. Adjustments distribution within shareholders’ equity has been made in accordance with IFRS 1 and considering the following: (i) Capital stock, Legal reserve and other reserves captions have been remained without changes, due to their balances result from the application of Peruvian legal requirements in force and represent attributable decisions about captions within shareholders’ equity taken by shareholders, and, (ii) all remaining effects resulting from the IFRS first-time adoption have been included under Retained earnings caption as of January 1, 2011.

2.3.Significant accounting judgments, estimates and assumptions

The preparation of financial statements in accordance with IFRS requires Company’s management to make judgments, significant estimates and assumptions in determining the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of financial statements, as well as the reported amounts of revenues and expenses for the years ended December 31, 2012 and 2011.

Estimates and judgments are continuously being assessed and are based on historical experience and other factors, including the expectation of future events believed as reasonable under current circumstances. In Management’s opinion, these estimates were made on the basis of their best knowledge of the relevant facts and circumstances as of the date of preparation of financial statements; however, the final results could be different from the estimates included in the financial statements. The Company’s management does not expect that these changes, if any, would have a significant effect on the financial statements taken as a whole.

The accompanying financial statements are prepared using uniform accounting policies for similar transactions and events.

Most significant estimates considered by the Company’s management in its financial statements are basically referred to:

- Estimation of useful lives of assets to be depreciated or amortized - notes - 2.4.(i) and 2.4.(k).

- Long-lived assets impairment - note 2.4.(l).

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- Contingencies derived from legal processes and administrative procedures - note 2.4.(o).

- Determination of current and deferred income tax balances - note 2.4.(m).

Any differences in the estimates in subsequent actual results are recorded in the statements of income of the year in which they occur.

2.4. Summary of significant accounting principles and practices

(a) Functional and presentation currency

Items included in the Company’s financial statements are expressed in the currency of primary economic environment in which it operates (functional currency). The financial statements are presented in Nuevos Soles, which is the Company’s functional and presentation currency.

(b) Financial instruments: Initial recognition and measurement

Financial instruments are defined as any contract that gives rise to both a financial asset in a company and a financial liability or an equity instrument in another.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (conventional transactions) are recognized on the date of the transaction, that is to say, on the date on which the Company commits to purchase or sell the asset.

Classification of financial instruments at initial recognition depends on the purpose for which financial instruments were acquired and their characteristics. All financial instruments are recognized initially at fair value plus incremental costs related to the transaction which are directly attributable to purchase or issuance of financial instrument, except for in the case of financial assets or liabilities at fair value through profit or loss.

Financial assets and liabilities are offset and the net amount reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and Management has the intention to settle on a net basis, or to realize the assets and settle the liability simultaneously.

To the date of financial statements, the Company classifies its financial instruments within the following categories defined in IAS 39: (i) financial assets and liabilities at fair value through profit or loss, (ii) loans and receivables, (iii) financial liabilities, (iv) available-for-sale investments, and (v) held-to-maturity investments, as deemed appropriate. Management determines the classification of its financial instruments at initial recognition.

The most important aspects of each category are described below:

(i) Financial assets and liabilities at fair value through profit or loss

IIncludes derivatives financial instruments held for trading which are recognized in the statement of profit and loss at fair value. Fair values are obtained based on currency exchange rates and market interest rates. All derivatives are considered as

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assets when fair value is positive and as liabilities when negative. Gains and losses from changes in fair value are recorded in the statement of income within “Financial income” or “Financial expenses” caption, as appropriate.

As of December 31, 2012 and 2011, the Company did not maintain any financial asset or liability at fair value through profit or loss.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, for which the entity does not intend to sell them immediately or in the near future and have no recovery risk other than credit deterioration.

After their initial recognition, loans and accounts receivable are carried at amortized cost using the effective interest method, less any provision for impairment.

(iii) Financial liabilities

The Company maintains in this category: bank loans, trade accounts payable, accounts payable to related parties, financial obligations and other accounts payable.

Financial liabilities are recognized when the Company is part of contractual agreements of financial instrument. After their initial recognition, financial instruments are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized costs are calculated taking into account any discount or premium

on acquisition and fees or costs that are an integral part of the EIR.

Financial liabilities are presented as short-term obligations unless the Company has an irrevocable right to defer the obligations agreement for more than twelve months after the date of the statement of financial position.

(iv) Available-for-sale investments

Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other categories. These assets are presented as non-current, unless Management has the intention to sell the investment within twelve months from the date of the statement of financial position.

After initial measurement, available-for-sale investments are measured at fair value. Unrealized gains or losses due to changes in fair value are recognized directly in shareholders’ equity.

When financial asset is disposed of, cumulative gain or loss previously recorded in shareholders’ equity is recognized in the statement of comprehensive income. In the event that it could not be possible to determine a fair value due to lack of an active market and/or information relevant to its determination, available-for-sale investment are carried at cost

As of December 31, 2012 and 2011, the Company did not maintain available-for-sale investments.

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(v) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as to held-to-maturity investments when the Company has the intention and ability to hold them to maturity. After initial recognition, the Company measures their held-to-maturity investments at amortized cost using the effective interest rate (EIR) method. Gains and losses are recognized in the statement of income when the investment is disposed, had impairment or through amortization.

(c) Impairment of financial assets

The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(d) Derecognition of financial assets and liabilities

Financial assets:

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

(i) The rights to receive cash flows from the asset have expired; or

(ii) The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and (a) the Company has transferred substantially all the risks and rewards of the asset; or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of it, the asset is recognized to the extent of the Company’s continuing involvement in it.

Financial liabilities:

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. When an existing financial liability is replaced by another one from the same lender on substantially different terms, or the terms are substantially

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modified, such replacement or amendment is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognized in the statement of income.

(e) Transactions in foreign currency

Transactions in foreign currency are those carried out in any currency different from functional currency. Transactions in foreign currency are initially recorded at the functional currency using the exchange rates prevailing as of the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the exchange rate ruling at the date of settlement of transactions or the date of the statement of financial position, recognizing arising gains or losses in the statement of comprehensive income.

Exchange differences resulting from settlement of transactions in foreign currencies and from translation of monetary assets and liabilities at exchange rates at year-end, are recognized in the statement of comprehensive income.

Non-monetary assets and liabilities denominated in foreign currency are translated to the functional currency using the exchange rates prevailing as of the dates of the transactions.

(f) Cash and cash equivalent

For purposes of statement of cash flows, cash and cash equivalent include petty cash,

current accounts, saving accounts and time deposits with original maturities of 3 months or less.

(g) Investments in associates

Associates are all entities over which the Company exercises significant influence but not control. Investments in Associates are accounted for under the equity method. Under the equity method, the initial investment is recorded at cost and is adjusted results to recognize changes in the Company’s share in equity of Associates. Dividends received from Associates are credited to the value of investments.

(h) IInvestment Property

Investment properties are recorded at cost, net of accumulated depreciation. Annual depreciation is recognized as an expense in the statement of comprehensive income and is determined using the straight-line method based on estimated useful life of the building in 70 years.

(i) Property, furniture and equipment

Property, furniture and equipment are presented at cost net of accumulated depreciation, except for land, which is not depreciated. Property, furniture and equipment’s initial cost comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable cost to locate and bring the asset in conditions of its intended use. Subsequent expenditures on property, furniture and equipment are recognized only when it is probable that the Company will obtain the future economic

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benefits derived from it and the cost of the asset can be reliably measured. Expenditures for maintenance and repairs are expensed in the year they are incurred.

Any revaluation increase is recognized in other comprehensive income and accumulated in equity under “Other equity reserves” for revaluation of assets, unless the increase corresponds to the reversal of a revaluation decrease of the same asset previously recognized in the state of comprehensive income, in which case the increase is recognized in the statement of comprehensive income. A revaluation decrease is recognized in the statement of comprehensive income, except to the extent that the decrease offsets an increase for the same asset previously recognized in the asset revaluation reserve. At the time of sale of a revalued asset, any revaluation reserve relating to that asset is transferred to retained earnings.

Depreciation is calculated on a straight line basis over the estimated useful lives of the assets and depending on machine hours used, as shown below:

Years

Buildings and constructions From 70 to 79

Transport units 9

Furniture and fixtures From 7 to 10

Computer equipment From 3 to 8

Other equipment From 5 to 8

An item of property, furniture and equipment or any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income when the asset is derecognized.

The assets’ residual value, useful lives and depreciation methods and rates of assets are reviewed periodically by Management on the basis of the economic benefits expected for components of property, plant and equipment.

(j) Finance lease

Leases in which the Company assumes substantially all the risks and inherent benefits to ownership of the leased items are classified as finance leases. At the beginning of the lease, it is recorded as assets and liabilities at the fair value of the leased property. Those assets are depreciated on a straight-line basis over the estimated useful lives of own similar items. Annual depreciation is recognized as expense for the period.

(k) Intangible assets

Intangible assets acquired separately are initially measured at acquisition cost. After initial recognition, intangible assets are recorded at cost net of accumulated amortization and/or impairment losses, if applicable.

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The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives (software) are amortized on a straight-line basis over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of comprehensive income within “Administrative expenses” caption.

Amortization of intangible assets is calculated based on the straight-line method and using the following estimated useful lives:

YearsSoftware use licenses 3 to 5Computer software 3, 5 and 10

The useful life and depreciation method are reviewed periodically by Management on the basis of expected economic benefits for the components of Intangible assets.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net income from the sale and the carrying amount of the asset and is recognized in the statement of comprehensive income when the asset is derecognised.

(l)Impairment of non-financial assets

When events or economic changes indicate that the value of a long-lived asset may not be recoverable, Management reviews the book value of this asset. If after this analysis, it appears that its book value exceeds its recoverable value, an impairment loss is recognized in the statement of income, in an amount equivalent to the excess of the net book value net of its tax effects. Recoverable amounts are estimated for each asset or, if not possible, for each cash generating unit.

The recoverable amount of a long-lived asset or a cash generating unit is the higher between fair value less costs to sell and its value in use. Fair value less costs to sell of a long-lived asset or a cash generating unit is the amount that is available to sell, in an arms’ length transaction between knowledgeable parties, less costs of sales. Value in use is the present value of estimated future cash flows expected to be derived from a long-lived asset or a cash generating unit.

(m) Income tax and workers’ profit sharing

Current income tax and workers’ profit sharing

The asset or liability for current income tax is measured as the amount expected to be recovered from or paid to the tax authorities. The income tax is calculated on the basis of individual financial information of the Company. According to legal regulations, the participation of employees is calculated on the same basis as is used to calculate the current income tax. The rate of income tax and the percentage of employee involvement applicable to the Company are 30 percent and 5 percent respectively.

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Deferred income tax

The deferred income tax reflects the effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and those determined for tax purposes. The deferred assets and liabilities are measured using tax rates expected to apply to taxable income in the years when these differences are recovered or settled. The measurement of deferred assets and liabilities reflects the tax consequences arising from the manner in which the Company expects to recover or settle the carrying amount of assets and liabilities at the date of the statement of financial position.

Deferred tax assets and liabilities are recognized regardless of when it deems that the temporary differences will disappear. Deferred tax assets are recognized when it is likely that there are sufficient future benefits for the deferred tax assets can be applied. As of the date of the statement of financial position, the Company assesses unrecognized deferred assets and the recorded accounting balances.

(n) Provisions

Provisions are recognized only when the Company has a present obligation (legal or constructive) as a result of a past event, it is likely that resources will be required to settle the obligation and its amount can be reasonably estimated. Provisions are reviewed periodically and are adjusted to reflect the best estimate available as of the date of the statement of financial position.

When the effect of the value of money over time is important, the amount of the provision is the present value of the expenditures expected to settle the obligation.

(o) Contingent assets and liabilities

Contingent liabilities are not recognized in the financial statements, only disclosed in the notes to the financial statements unless the possibility of an outflow of resources is remote.

Contingent assets are not recognized in the financial statements and are only disclosed in the notes to the financial statements when it is probable that an inflow of resources.

(p) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company. Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, taxes and other items related to sales. The recognition criteria described below must also be met before revenue is recognized:

(i) Income amount can be reliably measured;(ii) It is probable that economic benefits associated with the transaction will flow to

the Company; (iii) Transaction’s level of completion on the date of financial statements can be

reliably measured; and, (iv) Costs incurred or to be incurred to completion can be reliably measured.

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(q) Recognition of costs and expenses

Operating costs and expenses are recorded in the periods to which they relate and are recognized in results as accrued, regardless of when they are paid, and recorded in the periods to which they relate.

(r) Financial income and expenses

Financial income and expenses are recognized in the income statement in the periods to which they relate and are recognized when earned, regardless of when it is received or disbursed.

(s) Basic and diluted earnings per common share

Basic and diluted earnings per share are calculated by dividing the net profit by the weighted average number of common shares outstanding during the period. Shares that are issued due to the capitalization of profits, or similar transactions, are deemed to be a stock split, thus for the computation of the weighted average number of shares are considered as had always been issued.

Diluted earnings per share correspond to basic earnings per share, adjusted by dilutive effects from shares arising from convertible bonds or shares, between others. The Company has no financial instruments with dilutive effects, so basic and diluted earnings per share are the same.

(t) Subsequent events

What happened after the end of the period that provides information about the Company at the date of the statement of financial position (adjusting events) is included in the financial statements. Significant subsequent events, that are not adjusting events, are disclosed in the notes to the financial statements.

2.5. IFRS standards issued but not yet effective

Some new standards, amendments and interpretations of existing IFRS were published and are required for the Company for annual periods beginning on or after January 1, 2013, but the Company has not yet adopted. From them, those applicable to the Company are the following:

- IAS 1 “Presentation of financial statements – Presentation of Other comprehensive income”This amendment to IAS 1 change the grouping of items presented in Other comprehensive income. Items required to be reclassified to results in the future must be presented separately from those not intended to be reclassified. This amendment will only have impact at presentation level and will not have impact on the Company’s financial position or performance.

- IAS 32 “Financial Instruments: Presentation” – Offset of financial assets and liabilities – Improvements to IAS 32These improvements clear the concept of “only if only if there is a current legally

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enforceable right to offset”. The improvements also clear offset criteria application of IAS 32. The Company’s management believes the adoption of these amendments will not have impact on the Company’s financial position and will become effective for annual periods beginning on or after January 1, 2014.

- IFRS 7 “Financial Instruments: Disclosures” (amendment)The amendment requires additional disclosures about financial assets that have been transferred, but not derecognized, to enable the user of the Company’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after January 1, 2013. The amendment affects disclosure only and has there no impact on the Company’s financial position or performance.

- IFRS 9 “Financial Instruments: Classification and Measurement”IFRS 9 as issued reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was intended to be effective for annual periods beginning on or after January 1, 2013, but subsequent amendments issued in December 2011 delayed the effective date of this standard up to January 1, 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The

Company will quantify the effect in conjunction with the other phases, when final version of standard be issued.

- IFRS 12 “Disclosure of involvement in other entities”IFRS 12 includes all disclosures previously incorporated in IAS 27 related to consolidated financial statements as well as all disclosure previously incorporated in IAS 31 and IAS 28. These disclosures are related to involvement in subsidiaries, joint ventures, associates and structured entities. IFRS 12 becomes effective for annual periods beginning on or after January 1, 2013. The Company is still evaluating the impact, if any, from the adoption of this standard.

- IFRS 13 “Fair value measurement”IFRS 13 establishes a complete guide under IFRS for all fair value measurements. IFRS 13 does not change when an entity requires the use of fair value, but gives guidance about how to perform fair value measurements under IFRS when fair value is required or permitted. The Company, based on a preliminary analysis, does not expect any significant impact as a result of the adoption of this standard. IFRS 13 becomes effective for annual periods beginning on or after January 1, 2013.

3. Foreign currency transactions

Foreign currency transactions are carried out at open market exchange rates. As of December 31, 2012, the exchange rates published by the Superintendencia de Banca, Seguros y AFPs, applied by the Company in the asset and liability accounts were

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S/.2.549 for USD 1 for purchase and S/.2.551 for USD 1 for sale (S/.2.695 for USD 1 for purchase and S/.2.697 for US D1 for sale as of December 31, 2011).

As of December 31, 2012 and 2011, the Company held the following assets and liabilities denominated in foreign currency expressed in U.S. dollars:

2012 2011

USD(000) USD(000)

Asset

Cash and cash equivalents 337 65

Held-to-maturity investments 175 159

Trade accounts receivable 973 979

Other accounts receivable 235 130

1,720 1,333

Liabilities

Trade accounts payable (232) (102)

Other accounts payable (76) (91)

(308) (193)

Net asset position 1,412 1,140

As of December 31, 2012 and 2011, the Company has decided to assume the exchange-rate risk, so it did not take any hedging activity to cover exchange-rate risk as of such dates.

During 2012 and 2011, the Company has recorded net exchange losses amounting to S/.151,000 and S/.161,000, respectively, which are presented in “Net exchange loss” caption within statement of comprehensive income.

4. Cash and cash equivalent

(a) This item is made up as follows:

2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Petty cash 7 7 7

Current accounts 68 117 113

Saving accounts 208 282 579

Time deposits with original maturities lower than 90 days (b) 672 621 2,707

955 1,027 3,406

Escrow deposits (c):

- Current portion 2,577 2,745 2,240

- Non-current portion 103 1,343 2,583

2,680 4,088 4,823Time deposits with original maturities greater than 90 days (b) 9,301 12,977 7,425

15YEARS


(b) As of December 31, 2012 and 2011 and January 1, 2011, time deposits are mainly denominated in nuevos soles and held in domestic financial entities, bearing interest at annual effective rates between 2.04 and 5.15 percent as of December 31, 2012 (between 3 and 4.8 percent and 2.45 and 3.2 percent as of December 31, 2011 and as of January 1, 2011, respectively, and have maturities between January and October 2013.

(c) At December 31, 2012 and 2011 and January 1, 2011, term deposits include a restricted deposit at Scotiabank Peru SAA by S/.950, 000, S/.1, and S/.1 514,000, 500,000, respectively, as security for a letter of credit from initial value of $ 5,000,000 made in the Bank Nova Scotia (Houston, USA), for operations at Depository Trust Clearing Company (DTCC) and the Canadian Depository for Securities Limited (CDS), which bears interest at an effective annual rate of 3.50, 4.35 and 2.52 percent, respectively, and matures in August 2013.

Also, at December 31, 2012 and 2011 and January 1, 2011, the Company had restricted funds S/.1 BBVA Banco Continental, 730,000, S/.2, and S/.3 574,000, 323,000, respectively, which guarantee quotas the lease signed with the financial institution, see note 13, and bear interest at annual effective rate of 5.15 percent.

(d) During 2012, term deposits accrued interest by S/.575,000 (S/.672,000 during 2011), see note 19.

15YEARS


5. Held-to-maturity investments

As of December 31, 2012, the fair value and amortized cost of held-to-maturity investments includes:

Issuer Financial Instrument Type Maturity Interest Rate (%) Currency Fair Value AmortizedCost

S/.(000) S/.(000)

Tiendas EFE S.A. Commercial paper April 2013 Between 5.40 and 5.50 S/. 206 201

Telefónica del Perú S.A.C. Reporting operation January 2013 8.28 S/. 34 33

Empresa Pomalca S.A.A. Reporting operation March 2013 8.27 S/. 205 200

Casa Grande S.A.A. Reporting operation February 2013 8.37 US$ 455 447

900 881

15YEARS


Issuer Financial Instrument Type Maturity Interest Rate (%) Currency Fair Value Amortized Cost

S/.(000) S/.(000)

Tiendas EFE S.A. Commercial paper January 2012 5.95 S/. 150 145

Rash Perú S.A.C. Commercial paper April 2012 5.33 S/. 150 146

Financiera Efectiva S.A. Commercial paper May 2012 5.60 S/. 150 146

Telefónica del Perú S.A.C. Reporting operation March 2012 11.00 S/. 40 39

Austral Group S.A. Reporting operation January 2012 11.00 S/. 65 64

Empresa Agroindustrial Pomalca S.A.A. Reporting operation February 2012 11.00 S/. 122 120

Sociedad Minera Cerro Verde S.A.A. Reporting operation January 2012 11.00 S/. 40 40

Casa Grande S.A.A. Reporting operation February 2012 11.00 US$ 435 428

1,152 1,128

As of December 31, 2011, the fair value and amortized cost of held-to-maturity investments includes:

15YEARS


As of January 1, 2011, the fair value and amortized cost of held-to-maturity investments includes:

Issuer Financial Instrument Type Maturity Interest Rate(%) Currency Fair Value Amortized Cost

S/.(000) S/.(000)

Tiendas EFE S.A. Commercial paper March 2011 5.00 S/. 128 125

Ferreyros S.A.A. Reporting operation Between January and May 2011

Between 6.80and 7.80 S/. 1,211 1,197

Corporación Miski S.A. Reporting operation February2011 11.00 S/. 111 109

Casa Grande S.A.A. Reporting operation January 2011 8.89 USD 428 421

Casa Grande S.A.A. Reporting operation February 2011 11 S/. 110 109

Gold Fields La Cima S.A.A. Reporting operation February 2011 8.50 S/. 832 830

2,820 2,791

During 2012 and 2011, held-to-maturity investments accrued interest by S/.92, 000 and S/.232 000, respectively, see note 19.

15YEARS


6. Trade accounts receivable, net


2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Invoices receivable from third parties (b) 10,367 4,147 6,095

Invoices receivable from related parties, note 21 11 8 2

10,378 4,155 6,097

Less – Allowance for doubtful accounts (d) (1,458) (1,455) (1,408)

8,920 2,700 4,689

(b) Invoices receivable are denominated in nuevos soles and U.S. dollars, have current maturities, non-interest bearing and have no specific guarantees.

(c) As of December 31, 2012 and 2011, and January 1, trade accounts receivable aging is as following:

Not Impaired Impaired TotalS/.(000) S/.(000) S/.(000)

As of December 31, 2012Outstanding 8,700 - 8,700Past due: Up to 1 month 59 25 84 From 1 to 3 months 158 22 180 From 3 to 6 months 3 39 42 More than 6 months - 1,372 1,372Total 8,920 1,458 10,378As of December 31, 2011Outstanding 2,440 - 2,440Past due: Up to 1 month 38 14 52 From 1 to 3 months 179 31 210 From 3 to 6 months 32 33 65 More than 6 months 11 1,377 1,388Total 2,700 1,455 4,155As of January 1, 2011Outstanding 4,413 - 4,413Past due: Up to 1 month 35 32 67 From 1 to 3 months 201 24 225 From 3 to 6 months 1 31 32 More than 6 months 37 1,321 1,358Total 4,689 1,408 6,097

15YEARS


The movement in the allowance for doubtful accounts is as follows:

2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Beginning balance 1,455 1,408 1,409

Provision charged to results, note 18 191 209 164

Write-offs (4) (18) (12)

Recoveries (116) (93) (121)

Exchange difference (68) (51) (32)

1,458 1,455 1,408

In Management’s opinion, the allowance for doubtful accounts’ balance is enough to adequately cover credit risks as of the date of each statement of financial position.

7. Other accounts receivable


2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Loans to third parties 572 78 94

Loans to employees and officers 355 468 347

Interest receivable 221 300 161

Guarantee deposits 39 41 43

Advances to suppliers 37 1 7

Others 25 24 32

1,249 912 684

(b) Other accounts receivable are denominated in nuevos soles and U.S. dollars, have current maturities, non-interest bearing and have no specific guarantees.

(c) In Management’s opinion, it is not necessary recognize the allowance for doubtful accounts as of the date of the statement of financial.

15YEARS


8. Investment in associates


(b) During 2011, the Company contributed capital for the amount of S/.60, 000, equivalent to 0.56 percent of its participation of stock capital of CEVALDOM

(c) The value of investments in associates as of December 31, 2012 and 2011 and January 1, 2011, has been determined by applying the equity method on the financial statements as of such dates. Associates are entities engaged in the clearance and settlement of securities in Dominican Republic and Bolivia.

(d) During 2012 and 2011, the Company has not entered into transactions with its associates and does not have outstanding balances receivable and / or payable to them as of December 31, 2012 and 2011 and January 1, 2011.

(e) 2012 and 2011, the results generated by the equity method were S/.1,888,000 and S/.2,319,000, respectively, the same as shown in the statement of comprehensive income.

Associates Main business activity Number of shares Capital stock participation Book value

2012 2011 01.01.2011 2012 2011 01.01.2011 2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Depósito Centralizado de Valores S.A. – CEVALDOM (b) Central Securities Depository 32,960 19,996 12,481 20.00% 20.00% 19.44% 4,569 3,146 1,206

Entidad de Depósito de Valores de Bolivia S.A. Central Securities Depository 20,886 20,886 20,886 27.23% 27.23% 27.23% 2,421 1,909 1,469

6,990 5,055 2,675

15YEARS


9. Investment property, net

(a)This item is made up as follows:

Descripción Land Buildings and other construction 2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Cost

Balance as of January, 1 102 2,284 2,386 2,386 2,386

Additions - - - - -

Balance as of December 31 102 2,284 2,386 2,386 2,386

Accumulated depreciation

Balance as of January, 1 - 97 97 65 65

Additions - 32 32 32 -

Balance as of December 31 - 129 129 97 65

Net book value 102 2,155 2,257 2,289 2,321

(b) The June 24, 2008, the Company entered into with Parexel International SA (the Lessee) a lease operating offices and parking for a particular area of a property acquired through finance lease (Notes 10 and 13). The contract ends on June 30, 2013. The Lessee has the right to renew the term of the contract for two (2) periods for both sides and forced consecutive three (3) years each without option to buy, and rent increases annually at the rate of 3 percent from July 1, 2009.

During the years 2012 and 2011, income from real estate investment totaled S/.322, and S/.301 434, 157, respectively. At December 31, 2012 and 2011 and January 1, 2011, the fair value of real estate investment, according to appraisals performed by independent appraisers, amounted to S/.2, 257,000, S/.2, and S/.2 289,000, 321,000, respectively.

15YEARS


10 . Property, plant and equipment, net


Description Land Buildings and other Construction (b) Transport units Furniture and

FixturesComputer

Equipment Other Equipment Units in Transit 2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Cost

Balance as of January, 1 1,270 4,829 97 374 548 1,751 3 8,872 8,549 8,549

Additions (c) - - - 6 308 39 - 353 323 -

Balance as of December 31 1,270 4,829 97 380 856 1,790 3 9,225 8,872 8,549

Accumulated depreciation

Balance as of January, 1 - 719 - 46 123 243 - 1,131 656 656

Additions (d) - 65 8 46 145 255 - 519 477 -

Balance as of December 31 - 784 8 92 268 498 - 1,650 1,133 656

Net book value 1,270 4,045 89 288 588 1,292 3 7,575 7,739 7,893

(b) At December 31, 2012 and 2011 and January 1, 2011, fixed assets include assets acquired under a finance lease, see note 13, and comprising the building located in San Isidro for a net book value S/.5, 386,000, S/.5, 462,000 and 5.539 million, respectively, see note 9. At December 31, 2012 and 2011 and January 1, 2011, the Company has distributed the value of the property acquired under capital leases of real estate

investment S/.2, 257,000, S/.2, and S/.2 289,000, 321,000, respectively , see note 9, and part of the premises used for its operations to buildings and other structures by S/.3, 129,000, S/.3, and S/.3 173,000, 218,000, respectively.

15YEARS


(c) During 2012 and 2011, main fixed asset additions are computers to data center servers by S/.121, 000, and servers by S/. S/.72,000.

(d) The depreciation of property, plant and equipment was recorded in operating costs, see Note 18.

(e) The Company maintains insurance policies over its main fixed assets, in accordance with policies established by Company’s Management.

11. Intangible assets, net


Description Licenses Clearance Software Base Software (b) Software in

Process 2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Cost

Balance as of January 1 2,170 776 18,508 1,285 22,739 21,731 21,731

Additions 85 - - 462 547 1,008 -

Retirements and/or sales - - (16) - (16) - -

Transfer - - 885 (885) - - -

Balance as of December 31 2,255 776 19,377 862 23,270 22,739 21,731

Accumulated amortization

Balance as of January 1 1,708 776 9,135 - 11,619 10,198 10,198

Adittions (c) 196 - 1,329 - 1,525 1,421 -

Balance as of December 31 1,904 776 10,464 - 13,144 11,619 10,198

Net book value 351 - 8,913 862 10,126 11,120 11,533

15YEARS


(b) As of December 31, 2012 and 2011 and January 1, 2011, the base software primarily include expenditures for internal software development called “WARI”.

(c) The amortization of intangible assets has been recorded in operating costs, see note 18.

12. Deferred income tax liability

(a) The components comprising the deferred income tax liability’s balance are as follows:

As of January 1, 2011(Debit)/credit in

statement of comprehensive income

As of December 31, 2011(Debit)/credit in

statement of comprehensive income


S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Deferred income tax asset

Provisions for expenses 53 (28) 25 27 52

Allowance for doubtful accounts - 9 9 69 78

Vacations payable 166 27 193 (10) 183

Total 219 8 227 86 313

Deferred income tax liability

Valuation of investments (65) (724) (789) (566) (1,355)

Differences in intangible assets’ amortization rates 1 2 3 (31) (28)

Revalorization of property, furniture and equipment (5) (3) (8) (101) (109)

Finance lease (1,145) (232) (1,377) (333) (1,710)

Total (1,214) (957) (2,171) (1,031) (3,202)

Total deffered income tax liability (995) (949) (1,944) (945) (2,889)

15YEARS


(b) Income tax expense in statement of comprehensive income is made up as follows:

2012 2011

S/.(000) S/.(000)

Income tax

Current 3,308 5,044

Deferred 945 949

Total income tax 4,253 5,993

(c) Reconciliation of income tax effective and tax rates is as follows:

2012 2011S/.(000) % S/.(000) %

Profit before income tax 13,867 100.00 19,732 100.00

Income tax determined according to tax rate 4,160 30.00 5,920 30.00

Effect on (income) expense not deductible

Permanent differences 93 0.67 73 0.37

Recorded income tax expense 4,253 30.67 5,993 30.37

(d) Income tax payable is presented net of income tax paid in advance.

13. Financial obligations

Comprising a lease agreement signed on 24 September 2007 with BBVA Banco Continental SA for the acquisition of property, see note 10, for an initial amount of US$1,513,000, with monthly maturities until January 2014, the same as accrues interest at an effective annual rate of 6.05 percent and which maintains a restricted fund, see note 4. At December 31, 2012 and 2011 and January 1, 2011, the balance of the debt is S/.1,100,000, S/.2, and S/.2,055,000,956,000, respectively, of which current portion amounted to S /.1,013,000, S/.955, S/.901,000,000, respectively, and the non-current portion amounts to S/.87, 000, S/.1, and S/.2,100.000,055.000, respectively.

14. Taxes payable

This item is made up as follows:

2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Value Added Tax 1,157 247 656

Income tax third category 586 564 1,694

Income tax of the fifth category 105 251 140

Pension fund Administrators 67 139 87

EsSalud 37 76 47

Others 2 4 10

1,954 1,281 2,634

15YEARS


15. Other accounts payable


2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Vacations payable 609 644 496

Workers’ profit sharing payable 600 885 710

Other provisions 348 - 221

Severance indemnities 94 76 64

Others 148 418 258

1,799 2,023 1,749

16. Shareholders’ equity

(a) Capital stock

As of December 31, 2012 and 2011 and January 1, 2011, the authorized capital stock, subscribed and paid is represented by 25,994,432 common shares, with a nominal value of S/.1.00 per share.

As of December 31, 2012, the Company’s shareholding structure is the following:

Percentage of individual participation in capital stock

Number of shares

Total percentage of participation

Up to 0.01 to 5 110 50%

From 5.01to10 1 10%

From 10.01 to 40 1 40%

112 100%

No shareholder by itself or with its related, can be direct or indirect owner of shares representing more than 10 percent of the capital stock entitled to vote or exercise voting rights for more than this percentage, except in the case of the Exchange de Valores de Lima SA you can have a maximum participation of 40 percent of the share capital with voting rights and exercise voting rights to that percentage.

(b) Legal Reserve

Under the Corporations Act, is required to constitute a legal reserve transfer not less than 10 percent of annual net income to reach 20 percent of the paid capital. In the absence of earnings or available reserves, the legal reserve may be used to offset losses.

At December 31, 2012, the legal reserve of the Company amounts to S/.5, 199,000, which represents 20 percent of the capital.

15YEARS


(c) Retained earnings

The dividend policy of the Company provides that the Directors of the Company will evaluate the ability to distribute, as a dividend, 40 percent of earnings in each quarter, based on the financial statements to be developed for this purpose and in strict compliance with all applicable legal provisions.

According to the Law on Income Tax, legal entities that agree to distribute profits, shall withhold 4.1 percent of the amount to be distributed, except when the distribution is made for companies domiciled. There are no restrictions on the remittance of dividends, net of withholding tax, capital repatriation and foreign investors.

At the General Meeting of Shareholders Annual Required March 26, 2012 approved the distribution of dividends by S/.11, 072,000, of which S/.4, 701,000 were delivered in progress during 2011 and the balance in February and S/.1 April 2012, and S/.4 560,000, 811,000, respectively.

During 2012, the Company’s Board of Directors approved the delivery of advance dividends on the results of that year, which were given as follows:

Board of Directors’ Agreement Date In S/.(000)

Dividends per common share in S/.

Meeting held on April 25, 2012 940 0.036

Meeting held on July 18, 2012 426 0.016

Meeting held on Oct 17, 2012 411 0.016

1,777

17. Operating revenues

Below is a breakdown of this caption:

2012 2011

S/.(000) S/.(000)

Floor sessions 19,908 22,614

Time Reports 501 432

Spot Reports 384 391

Other operations 204 271

20,997 23,708

Services to issuers 4,214 5,087

Services for participants 2,046 2,014

Other services 783 888

28,040 31,697

15YEARS


18. Operational costs


2012 2011

S/.(000) S/.(000)

Payroll 10,214 9,217

Services provided by third parties 5,746 4,580

Intangible assets amortization 1,525 1,421

Management expenses 662 514

Property, furniture and equipment depreciation, note 10 519 477

Taxes 199 215

Allowance for doubtful account, note 6 191 209

Investment property depreciation, note 9 32 32

19,088 16,665

19. Financial income


2012 2011

S/.(000) S/.(000)

Interest on stock exchange accounts (b) 1,640 1,113

Interest on time deposits 575 672

Interest on held to maturityinvestments, note 5 92 232

Other financial income 8 9

2,315 2,026

(b) Include benefits generated by the administration of funds received from issuers maintained in the accounts of the Company. These benefits are recognized in accordance with the Rule for Securities Clearing and Settlement Entities.

20. Tax situation

(a) The Company is subject to Peruvian tax law. At December 31, 2012 and 2011, the rate of income tax is 30 percent on taxable income.

Legal persons not domiciled in Peru and people must pay an additional tax of 4.1 percent on dividends received.

15YEARS


(b) For purposes of determining the income tax and general sales tax, transfer pricing of transactions with related companies and companies residing in areas of low or no taxation should be supported by documentation and information on measurement methods used and the criteria used for its determination.

Based on the analysis of the Company’s operations, management and its legal counsel that, as a result of the application of these standards will not result in significant contingencies for the Company at December 31, 2012 and 2011.

(c) The Tax Authority has the power to inspect and, if necessary, adjust the income tax calculated by the Company during the four years following the year of the filing of the affidavit. The affidavits of income tax and general sales tax for the years 2008 to 2012 inclusive are pending audit by the Tax Authority.

(d) In compliance with Law No. 29645, the Company acts as withholding agent in transactions are settled as of November 1, 2011. Such withholding does not apply when paid to companies domiciled in Peru, Corporate Managers of Mutual Funds in Securities and Investment Funds, Mutual Wealth Titulizadoras held in trust, Trust Bank and Trust Pension Fund Administrators.

21. Balances and transactions with related companies

(a) The main transactions between the Company and Bolsa de Valores de Lima S.A., registered in the statement of comprehensive income are as follows:

2012 2011

S/.(000) S/.(000)

Operating revenues 50 10

Operational costs 32 44

Income corresponds to the service of maintaining the recording of its shares and reimbursements for forum organization. Expenses correspond to the service of recording its shares in the market, legal advice and sponsorships of market securities events.

Transactions with Bolsa de Valores de Lima S.A., have made under normal market conditions. Taxes generated by these transactions and the basis of calculation for their determination, are conventional in the industry and are settled according to current tax regulations, see note 20(b).

Due from and to Bolsa de Valores de Lima S.A. have current maturities, non-interest bearing and have no specific guarantees. (b) As a result of these and other transactions, the Company had the following accounts receivable and payable with Bolsa de Valores de Lima SA:

2012 2011 01.01.2011

S/.(000) S/.(000) S/.(000)

Trade accounts receivable 11 8 2

Trade accounts payable - - 9

15YEARS


22. Basic and diluted earnings per common share

Basic earnings per common share is computed by dividing net income for the year attributable to common shareholders by the weighted average number of common shares outstanding during the year. Because there are no dilutive common shares, diluted earnings per common share is equal to basic earnings per share.

Shares outstanding

Day effective until year end

Weightedaverage of

common shares

Balance at December 31, 2012 25,994,432 365 25,994,432

Balance at December 31, 2011 25,994,432 365 25,994,432

The calculation of basic and diluted earnings per share at December 31, 2012 and 2011 is presented below:

2012 2011

Profit for the year, in soles (numerator) 9,614,000 13,739,000

Weighted average number of common shares outstanding during the year 25,994,432 25,994,432

Basic and diluted earnings per share 0.37 0.53

23. Settlement Fund - Cavali

The Securities Market Law Exchange Act requires the Company to maintain and administer a settlement fund in order to provide greater security to the clearing or settlement process and to protect the participant’s risk of default of the counterparty, the fund must maintain resource settlement constitute a separate and distinct heritage of the Company.

The financial statements of the Settlement Fund - Cavali are summarized as follows:

2012 2011

S/.(000) S/.(000)

Statement of financial position

Total assets 14,659 12,985

Total liabilities 56 52

Total equity 14,603 12,933

14,659 12,985

Statement of comprehensive income

Total income 2,161 2,189

Total expenses (490) (440)

1,671 1,749

15YEARS


Composition of Settlement Fund – Cavali’s equity

Settlement Fund – Cavali’s equity is mainly composed by the contributions from participants directly involved in operations at centralized trading mechanisms, led by the Stock Exchanges where the Company provides clearing and settlement services. The contributions include those made directly by the participants and those applied on the settled amounts by each of them.

Settlement Fund – Cavali’s management

Settlement Fund – Cavali is represented by the Company and management is conducted by a Committee. This Committee is selected by the Company’s Board of Directors and is composed by three members at least.

Settlement Fund – Cavali’s management corresponds exclusively to the Company which receives a fee equivalent to 3 percent of annual cash from monthly average amount of the Settlement Fund – Cavali, as established in the Internal Regulations. Income related to Settlement Fund – Cavali’s management during 2012 and 2011 amounted to S/.408,000 and S/.366,000, respectively, and is included in “Miscellaneous income” caption within the statement of comprehensive income.

Investment of Settlement Fund – Cavali’s resources

Settlement Fund – Cavali’s resources can only be invested in deposits at local banks and financial institutions with a “B” minimum risk rating, representative debt securities with risk ratings between “A” and “AAA”, or their equivalents in non-share securities issued or guaranteed by the Government or by banks or financial institutions with a “B” minimum risk rating.

24. Off-balance sheet accounts of stock funds

They are related to funds from third parties received by Company as a result of clearing and settlement of transactions conducted inside and outside centralized mechanisms, as well as guarantees given for operations and funds received to give benefits or amortization and redemptions of debt instruments.

Assets and liabilities that are part of stock funds are as follows

2012 2011

S/.(000) S/.(000)

Active:

Cash and cash equivalents 114,513 64,996

Accounts receivable from participants 248,552 149,904

Other receivables 342 65

363,407 214,965

Liabilities:

Accounts payable to participants 248,589 150,240

Submission on behalf of issuers 250 243

Guarantees received from operations 20,394 7,905

Fees, taxes and contributions 37,542 5,166

financial income 67 68

Other accounts payable 56,565 51,343

363,407 214,965

15YEARS


Significant accounting policies for off-balance sheet accounts of stock funds are the following:

Cash and cash equivalents

Cash and cash equivalents caption is used to record the movement of every cash inflow and outflow as a result of clearing and settlement of securities purchase and sale transactions or other types of transactions, for reception and transfer of benefits and rights corresponding to their holders, as well as the reception and administration of guarantees. Also, in this caption is recorded the payment of contributions for Stock Exchange listing corresponding to Bolsa de Valores de Lima S.A. and to the Company, including the corresponding value added tax. As of December 31, 2012, this caption includes deposits in current and savings accounts in local banks by S/.58,000,000 and US$22,116,000, respectively (S/.21,763,000 and US$15,917,000, respectively, as of December 31, 2011). Accounts receivable from participants

Accounts receivable from participants caption is used to record the movement of dues that the Company has to collect from holders through participants for securities purchase and sale transactions, repurchase agreements and other types of transactions performed. Accounts payable to participants

Accounts payable to participants caption is used to record, at settlement date, the

movement of funds to be delivered by the Company in consideration of collection rights generated in favor of participants of the securities purchase and sale transactions, repurchase agreements and other types of transactions performed. Payments on behalf of issuers

Payments on behalf of issuers caption is used to record the movement of funds that the Company receives and transfers from issuers to corresponding holders, through their participants, for payment of benefits such as dividends and interest on debt instruments, as well as redeemed and amortized amounts with respect to such instruments. Guarantees received from transactions

Guarantees received from transactions caption is used to record the Company’s responsibility for the custody of cash funds received by the Company from participants as a guarantee for transactions, according to regulations in force.

25. Off-balance sheet accounts of securities

They are related to third party market securities registered in centralized mechanisms, and traded inside and outside them, as well as those that without being registered in such mechanisms are settled through the Company.

Assets and liabilities that are part of market and third party securities are as follows:

15YEARS


2012 2011

S/.(000) S/.(000)

Assets

Issuances 53,096,458 50,173,042

Account entries 104,931,154 96,173,727

158,027,612 146,346,769

Liabilities

Securities issued 53,096,458 50,173,042

Registration for account entries 104,931,154 96,173,727

158,027,612 146,346,769

Significant account policies for off-balance sheet accounts of securities are the following:

Issuances and Securities issued

The issuance account is used to record the issuance of registered securities, their class and series, when the Company becomes aware of the issuance whether they will be shown under entry on account or not. Its counterbalance account is the Issued Securities account.

The balance of the issuance account is composed of the face value of non-dematerialized securities not entered into the Company’s accounting records. Also,

it includes issuances related to agreements with other depositories with whom the Company acts as a participant, in which case the registration is made only for the percentage of the issuance to be recorded, not for the entire issuance corresponding to the securities involved.

Accounts entries and Registration for accounts entries

This account is used to record the movement of the securities registered in the system under entry on account system. Its counterbalance account is Registration for entries on account.

This account is represented by the universe of accounts where the ownership of the securities represented by entry on accounts of the investments is recorded, classified by ownership of securities, class of securities and status, as well as those securities that without being dematerialized are registered through the Company’s Entries on Account.

Transitional Matrix

The Transitional Main Account of the Company (account 80) was created on a temporary basis, and has its origin because of the change of the business model made in 1995, prior to the formation of the company which opted for total dematerialization of physical securities, which were traded on the stock exchange and were represented by the Holding Certificate, and the implementation of Main Accounts for each of the participants, who were assigned a series of holders of securities which to represent. As a result of this process, there were a number of securities holders who were not assigned to any Main Account, which have been registered in the Transitional Main

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Account of the Company. In this regard, the Company has been making efforts with the purpose of contacting the owners of the securities and thus manage the transfer of the same to the main account of some of the Participants; in many cases it has not been possible to make such contact, mainly because data of the owners has not been updated.

As of December 31, 2012, the balance of the transitional matrix represents 2,659,000 shares (2,607,000 shares as of December 31, 2011). Information on the details of the owners is available at the Company’s premises, so that owners wishing to obtain information may carry out the transfer, under the existing procedures.

26. Financial risk management

By the nature of its activities, the Company is exposed to credit risk, interest rate, liquidity, exchange rates and operational, which are managed through a process of identification, measurement and monitoring, subject to limits risk and other controls. This risk management process is critical to the continued profitability of the Company and each person is responsible for the risk exposures relating to their responsibilities.

The independent process risk control does not include business risks such as changes in the environment, technology and industry, which are monitored through the strategic planning process of the Company.

(a) Structure of Risk Management

The risk management structure is based on the Company’s Board of Directors is ultimately responsible for identifying and controlling risks, in coordination with other areas as explained below:

(i) Board of Directors

The Board is responsible for the overall approach to risk management. The Board provides written principles for risk management as well as policies covering specific areas, such as exchange rate risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative.

(ii) Internal Audit

The risk management processes in the Company are monitored by Internal Audit, which examines both the adequacy of the procedures and compliance with them. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Board.

(iii) Finance Department

The Finance Department is responsible for managing the assets and liabilities of the Company and all the financial structure. It is primarily responsible for managing the funds and liquidity risks of the Company, assuming liquidity risks, interest rate and exchange rate risks, as policies and limits currently in force.

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(b) Risk mitigation

As part of its overall risk management, the Company is constantly evaluating different scenarios and identify different strategies to manage exposures resulting from changes in credit risk, interest rate risk, currency risk and equity risk.

26.1. Credit risk

Credit risk is the risk that a counterparty defaults on its obligations under a financial instrument or contract, causing a loss. The Company is exposed to credit risk from its operating activities, primarily accounts receivable, and financial activities, including its bank deposits and transactions in derivatives and other financial instruments.

(a) Accounts receivable -

The Company makes most of its sales in cash. The balances of receivables are regularly reviewed to ensure their recovery.

(b) Financial instruments and bank deposits -

The credit risk on bank balance is administered by Finance and Administration in accordance with Company policies. The counterparty credit limits are reviewed by management and the Board and are set to minimize the concentration of risks and mitigate potential financial losses from counterparty defaults. The maximum

exposure to credit risk for the components of the financial statements at December 31, 2012 and 2011 comes from the items: Cash and cash equivalents, accounts receivable and other receivables.

At December 31, 2012, the Management has estimated that the maximum amount of credit risk to which the Company is exposed is approximately S/.23, 986,000 (S/.22, 831,000 at December 31, 2011), which represents the value carrying amounts of financial assets. In the opinion of management, there are no significant concentrations of credit risk at December 31, 2012 and 2011.

26.2. Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate risk, currency risk and equity investment risk. In the case of the Company, the financial instruments affected by market risk include loans and deposits, which are exposed to currency risk and interest rates.

The sensitivity analysis shown in the next section relates to the position at December 31, 2012 and 2011. The sensitivity analysis has been prepared considering that the amount of net debt and the ratio of foreign currency financial instruments held constant.

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(a) Interest rate risk -

The interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company manages its interest rate risk by obtaining debt with fixed interest rate. As indicated in note 13, to December 31, 2012 and 2011, long-term debt held by the Company is related to financial leases which are subject to a fixed interest rate. At December 31, 2012 and 2011, the Company does not have variable rate debt, which would be exposed to a risk of change in interest rate.

(b) Currency risk -

The exchange rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in exchange rates. The Finance Department is responsible for identifying, measuring, monitoring and reporting the overall risk exposure of the Company. Foreign exchange risk arises when the Company presents mismatches between its assets, liabilities and off statement of financial position in the various currencies in which it operates, which are mainly new soles (functional currency) and U.S. dollars.

The Company manages this risk by performing their main functional currency transactions. As a result, the risk that the Company is exposed to changes in exchange rates on foreign currency is minimal. Also, as indicated in note 3, at December 31, 2012 and 2011, the Company has a risk position in foreign currency net asset upward of U.S. $ 1,381,000 and U.S. $ 891,000, respectively. During 2012, operations were

conducted in foreign currency generated a loss difference, net upward S/.151, 000 (loss difference, net upward S/.160, 000 in 2011).

At December 31, 2011, the Management of the Company has reviewed the projections from fluctuations in 2012 in the local exchange rate fluctuations and estimated that these will not be significant.

The following table shows the sensitivity analysis of the U.S. dollar, the currency to which the Company has significant exposure at December 31, 2012 and 2011, its assets and liabilities and its forecast cash flows. The analysis determines the effect of a reasonably possible change in the exchange rate of the U.S. dollar, with all other variables constant in the statement of comprehensive income before income tax.

A negative amount shows a potential net reduction in the statement of comprehensive income, while a positive amount reflects a net potential increase:

Sensitivity analysis Change in Exchange rate 2012 2011

% S/.(000) S/.(000)

Devaluation -

nuevos soles 5% (180) (145)

nuevos soles 10% (360) (291)

Revaluation -

nuevos soles 5% 180 145

nuevos soles 10% 360 291

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(c) Liquidity risk -

Liquidity risk is the risk that the Company is unable to meet its payment obligations associated with financial liabilities when due and to replace funds when they are withdrawn. The consequence would be the non-payment of its obligations to third parties.

The Company monitors its risk to a shortage of funds using a cash flow projection in the short term for the determination of missing cash in the short term, requesting extensions to established credit lines and cash flow forecast long-term for the determination of structural deficiencies in missing cash and investment opportunities, considering funding if required in the medium and long term. Both cash flows are tools that management uses to monitor or mitigate any liquidity risk, scheduling all future payments under the cash estimates.

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The following table shows the maturity of the obligations of the Company at the date of the statement of financial position and the amounts to be disbursed at maturity, based on undiscounted payments will be made:

Past Due Less tan three months

From 3 to 12months

From 1 to 5years Total

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)


Financial obligations (including interest) - 165 848 87 1,100

Accounts payable (trade) 11 743 - - 754

Accounts payable (non-commercial) 61 27 1,634 77 1,799

Accounts payable to related companies - - - - -

Total 72 935 2,481 164 3,653

Past Due Less tan three months

From 3 to 12months

From 1 to 5years Total

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)


Financial obligations (including interest) - 155 800 1,100 2,055

Accounts payable (trade) - 313 - - 313

Accounts payable (non-commercial) 87 906 921 109 2,023

Accounts payable to related companies - - - - -

Total 87 1,581 1,721 1,209 4,391

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26.3. Risk capital management

The Company maintains an actively managed capital base to cover risks inherent in their activities. The adequacy of the Company’s capital is monitored using, among other measures, the ratios established by Management.

The Company’s objectives when managing its capital is a broader concept than the ‘equity’ as shown in the statement of financial position, these objectives are: (i) to safeguard the Company’s ability to continue operating to continue provide returns for shareholders and benefits for other stakeholders, and (ii) maintain a strong capital base to support the development and growth of their activities.

At December 31, 2012 and 2011, there were no changes in the activities and capital management policies of the Company.

26.4. Operational risk

Operational risk is the risk of loss arising from systems failure, human error or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. We can not expect to eliminate all operational risks, but through control and monitoring and responding to potential risks, you can manage these risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff training and assessment processes, including the review of Internal Audit.

26.5. Information on the fair value of financial instruments

In the opinion of management of the Company, the fair value of the Company’s financial instruments is not materially different from their carrying values and, therefore, disclosure of such information has no effect on the financial statements at 31 December 2012 and 2011.

27. Subsequent event

On January 22, 2013 the Board of Directors approved grant quarter dividend advance S/.2, 068.000 (S/.0.0795466 per outstanding share) on the utility available that was generated at December 31, 2012. It set a record date on February 15, 2013, and as payment date February 18, 2013.

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