organizaciÓn terpel s.a. separate financial statements in ... · 1 organizaciÓn terpel s.a....

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ORGANIZACIÓN TERPEL S.A.

Separate financial statements in thousands of Colombian pesos

As of December 31, 2018 and 2017

(With statutory auditor’s report)

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CONTENTS

Separate Statements of Financial Position, Classified

Separate Statement of Results, by Function

Separate Statements of Other Comprehensive Results

Separate Statements of Changes in Equity

Separate Statements of Cash Flow, Direct Method

Notes to the Separate Financial Statements

COP$ : Numbers expressed in Colombian pesos

USD$ : Numbers expressed in US dollars

M$ : Figures expressed in thousands of Colombian pesos

MM$ : Figures expressed in millions of Colombian pesos

MUSD : Figures expressed in thousand US dollars

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Contents of Separate Financial Statements

Note Page

Separate Statements of Financial Position, Classified 5

Separate Statement of Results, by Function 7

Separate Statements of Other Comprehensive Results 8

Separate Statements of Changes in Equity 9

Separate Statements of Cash Flow, Direct Method 11

Notes to the Separate Financial Statements 1 General Information 12

2 Basis for the preparation of separate financial statements 12 (a) Legal Technical Framework 12 (b) Measurement basis 13 (c) Transactions in foreign currency 13

3 Applied accounting policies and criteria 14 (a) Financial assets and liabilities 14

(b) Issued capital 17

(c) Equity instruments 17 (d) Inventories 17 (e) Intangible assets different from capital gains 18 (f) Capital gains 20 (g) Impairment 20 (h) Properties, plant and equipment 21 (i) Investment properties 22 (j) Provisions 23 (k) Benefits to employees 23

(l) Transactions with related parties 23 (m) Classification of balances in current and non current 23 (n) Tax on earnings and deferred taxes 24 (o) Distribution of dividends 25 (p) Recognition of income 25

(q) Expenses by function 26 (r) Leases 27 (s) Separate statement of cash flow 27

(t) Cash and cash equivalents 28

(u) Profit per share 28

(v) Costs for loans 28

(w) Assets and liabilities available for sale 29

(x) Business combinations 29

(y) Impact in new rules 30

(z) New rules and interpretations 34

(aa) Non-current issued rules 35

4 Acquisition of investments and business combinations 37

5 Financial risk management 43

6 Estimates and accounting judgments 52

7 Cash and cash equivalents 52

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Contents of Separate Financial Statements

Notes Page

8 Financial instruments 54

9 Financial assets at reasonable value with changes in results 54

10 Other non-financial assets 55

11 Commercial debtors and other accounts receivable 55

12 Balances with related entities 56

13 Inventories 58

14 Assets and liabilities for taxes 59

15 Non-current assets kept for sale 59

16 Investments accounted for using the participation method 60

17 Intangible assets different from capital gains 61

18 Capital gains 62

19 Properties, plant and equipment 64

20 Investment properties 65

21 Operating lease 66

22 Deferred taxes 66

23 Other current and non-current financial liabilities 68

24 Commercial accounts payable and other accounts payable 74

25 Current and non-current provisions for benefits to employees 74

26 Equity 75

27 Profit per share 77

28 Income from ordinary activities 77

29 Cost of sales 77

30 Expenses by nature 78

31 Other income by function 79

32 Financial results 81

33 Income tax 82

34 Contingencies 85

35 Subsequent events 85

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As of December 31 2018 and 2017

December 31 December 31

Note 2018 2017

Asset M$ M$

Current Asset:

Cash and cash equivalents 7 224,085,825 162,428,711

Other non-financial assets 10 63,758,003 72,814,622

Commercial debtors and other accounts receivable 11 506,617,840 393,885,933

Accounts receivable from related entities 12 41,808,325 43,933,710

Inventories 13 666,644,243 547,487,226

Assets for taxes 14 75,391,204 88,818,709

Non current assets kept for sale 15 - 1,394,387

Total current asset 1,578,305,440 1,310,763,298

Non-Current Asset:

Financial assets at reasonable value with changes in results 9 2,743,968 1,228,087

Other non-financial assets 10 32,132,109 31,333,100

Commercial debtors and other accounts receivable 11 9,723,334 10,472,593

Investments accounted for using the participation

method 16 1,381,894,031 411,358,340

Intangible assets different from capital gains 17 732,510,577 480,501,048

Capital gains 18 228,932,471 306,031,992

Properties, plant and equipment 19 1,515,895,027 1,305,818,770

Investment properties 20 5,958,729 5,967,920

Total current asset 3,909,790,246 2,552,711,850

Total asset 5,488,095,686 3,863,475,148

The attached notes are an integral part of these separate financial statements.

Sylvia Escovar Gómez Juan Carlos Romero Acero

Statutory Auditor

T.P. 173594-T

Legal Representative

Julián Andrés Viracachá M.

Accountant

T.P. 144154-T

Member of KPMG S.A.S.

(See my report from February 26, 2019)

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December 31 December 31

Note 2018 2017

Liabilities and Equity M$ M$

Current Asset:

Other financial liabilities 23 381,356,817 178,928,355

Commercial accounts payable and other

accounts payable 24 643,382,721 563,732,618

Accounts receivable from related entities 12 21,674,750 16,076,589

Liabilities for taxes 14 101,498,568 180,418,631

Items for benefits to employees 25 129,318 131,103

Total current asset 1,148,042,174 939,287,296

Non-Current Asset:

Other financial liabilities 23 2,113,653,623 1,021,798,405

Commercial accounts payable and other accounts payable 24 16,497,677 8,779,542

Liability for deferred taxes 22 247,304,987 216,346,875

Total non-current liability 2,377,456,287 1,246,924,822

Total liability 3,525,498,461 2,186,212,118

Equity 26

Issued capital 195,999,466 195,999,466

Share premium 219,365,731 219,365,731

Legal and statutory reserves 142,461,716 146,815,847

Other reserves 250,743,965 255,061

Cumulative profit 1,154,026,347 1,114,826,925

Total equity 1,962,597,225 1,677,263,030

Total liabilities and equity 5,488,095,686 3,863,475,148

-


T.P. 173594-T



Sylvia Escovar Gómez


Juan Carlos Romero Acero

Statutory Auditor


Accountant

T.P. 144154-T

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Separate Statement of Results by Function

For the periods ending on December 31 2018 and 2017

As of December 31 As of December 31

2018 2017

Note M$ M$

Income from ordinary activities 28 14,733,960,041 12,440,020,593

Cost of sales 29 (13,585,091,120) (11,367,569,392)

Gross profit 1,148,868,921 1,072,451,201

Distribution costs 30 (595,624,405) (518,871,559)

Administration costs 30 (143,555,278) (131,969,526)

Operating result before other income and expenses by function 409,689,238 421,610,116

Other profit, by function 31 122,557,757 25,576,928

Other expenses by function 31 (238,600,629) (59,877,821)

Operating revenue 293,646,366 387,309,223

Financial income 32 6,334,808 8,040,301

Financial costs 32 (174,389,595) (93,352,880)

Stake in profits of companies of

group and joint businesses that are accounted for

for using the participation method 16 22,922,483 27,659,039

Difference in exchange 32 (4,575,855) 6,583,297

Income before income tax 143,938,207 336,238,980

Expenses for income tax 33 (10,196,857) (140,957,773)

Period income 133,741,350 195,281,207

Basic income per share (*) 27 737.17 1,076.38


(*) Expressed in Colombian pesos






Accountant

T.P. 144154-T


Statutory Auditor

T.P. 173594-T

8


Separate Statements of Other Comprehensive Results


As of December 31 As of December 31

2018 2017

Note M$ M$

Period income 133,741,350 195,281,207

Profit (losses) for differences in conversion exchanges

conversion 26 206,659,569 (282,859)

Losses for cash flow hedges (89,254,335) (29,839,865)

Settlement of hedges 4 119,094,200 -

Other comprehensive results, before taxes 236,499,434 (30,122,724)

Taxes on income related to hedges

of cash flows of other comprehensive results 22 (11,040,748) 11,040,748

Total other comprehensive result 225,458,686 (19,081,976)

Total comprehensive result 359,200,036 176,199,231







T.P. 144154-T

Accountant


Statutory Auditor

T.P. 173594-T

9


Separate Statements of Changes in Equity, Net


as of December 31 2018 Capital in

shares Share premium

Legal and statutory

reserves Other stakes in the equity Hedges Cumulative profit Net equity, total

M $ M $ M $ M $ M $ M $ M $

Initial balance as of January 1, 2018 195,999,466 219,365,731 146,815,847 19,054,178 (18,799,117) 1,114,826,925 1,677,263,030

Decrease for changes in accounting policies (IFRS 9) - - - - - (1,255,456) (1,255,456)

Initial balance re-expressed as of January 1, 2018 195,999,466 219,365,731 146,815,847 19,054,178 (18,799,117) 1,113,571,469 1,676,007,574

Other comprehensive results - - - 206,659,569 18,799,117 - 225,458,686

Period income - - - - - 133,741,350 133,741,350

Total comprehensive result - - - 206,659,569 18,799,117 133,741,350 359,200,036

Release of reserves (note 26) - - (4,354,131) - - 4,354,131 -

Decreed dividends - - - - - (97,640,603) (97,640,603)

Increase for changes in the participation of subsidiaries - - - 25,030,218 - - 25,030,218

Total increase (decrease) of equity - - (4,354,131) 231,689,787 18,799,117 40,454,878 286,589,651

Final balance as of December 31, 2018 195,999,466 219,365,731 142,461,716 250,743,965 - 1,154,026,347 1,962,597,225

- - - - - -




Issued capital

Julián Andrés Viracachá M. Juan Carlos Romero Acero

Accountant Statutory Auditor

Other reserves

T.P. 144154-T T.P. 173594-T



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Separate Statements of Changes in Equity, Net


Capital in

shares Share premium

Legal and statutory

reserves Other stakes in the equity Hedges Cumulative profit Net equity, total

M $ M $ M $ M $ M $ M $ M $

Initial balance as of January 1, 2017 195,999,466 219,365,731 151,159,562 6,494,367 - 1,013,460,103 1,586,479,229

Other comprehensive results - - - (282,859) (18,799,117) - (19,081,976)

Period income - - - - - 195,281,207 195,281,207

Total comprehensive result - - - (282,859) (18,799,117) 195,281,207 176,199,231

Release of reserves (note 26) - - (4,343,715) - - 4,343,715 -

Decreed dividends - - - - - (98,258,100) (98,258,100)

Increase for changes in the participation of subsidiaries - - - 12,842,670 - - 12,842,670

Total increase (decrease) of equity - - (4,343,715) 12,559,811 (18,799,117) 101,366,822 90,783,801

Final balance as of December 31, 2017 195,999,466 219,365,731 146,815,847 19,054,178 (18,799,117) 1,114,826,925 1,677,263,030

##########




as of December 31 2017


Accountant

T.P. 144154-T


Statutory Auditor

T.P. 173594-T



Issued capital Other reserves

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Separate Statements of Cash Flow, Direct Method


2018 2017

M$ M$

Cash flows from operating activities: Note

Collections from the sale of goods and provision of services 14,645,697,498 12,388,110,171

Collections from premiums and provisions, annuities and other

benefits from subscribed policies 3,322,050 4,055,330

Other collections from operating activities 3,126,418 22,395

Payments to suppliers for the provision of goods and services (14,019,877,481) (11,970,264,939)

Payments to and for the account of the employees (115,603,513) (97,976,540)

Payments for premiums and provisions, annuities and other obligations

derived from subscribed policies (8,909,753) (8,237,923)

Interests paid (171,250) (163,756)

Interests received 6,232,063 7,923,426

Tax to paid income (155,323,385) (106,746,683)

Other cash outflows (1,267,897) (943,806)

Net cash provided in operating activities 357,224,750 215,777,675

Cash flows from investment activities:

Collections from reimbursement of advances and loans granted to third-parties 4 840,580,682 -

Cash from the sale of subordinates and other businesses - 23,695,767

Cash used to obtain the control of subordinates or other businesses 4 (1,822,809,150) -

Payments derived from future, term, options contracts and

swaps 4 (119,094,200) -

Loans to related entities (1,094,505) (2,344,152)

Amounts from the sale of property, plant and equipment 41,378 4,137,350

Acquisition of property, plant and equipment (125,087,820) (125,038,079)

Acquisition of intangible assets (143,956,771) (101,372,741)

Collections from future, term and options contracts and

swaps 4 - 6,826,658

Received dividends 18,746,228 16,068,041

Net cash used in investment activities (1,352,674,158) (178,027,156)

Cash flows from financing activities:

Amounts from short-term loans 7 ( b) 698,357,430 156,723,921

Amounts from short-term loans and long-term bonds 7 ( b) 2,775,500,000 -

Payment of loans 7 ( b) (2,161,925,294) (136,723,921)

Loans from related entities 1,362,985 3,034,761

Payment of liabilities from financial leases 7 ( b) (5,817,107) (4,953,971)

Dividends paid in cash (97,405,359) (98,053,119)

Interests paid 7 ( b) (151,241,133) (86,599,579)

Other cash outflows (1,725,000) -

Net cash provided (used) in financing activities 1,057,106,522 (166,571,908)

Increase (decrease) in cash and cash equivalents 61,657,114 (128,821,389)

Cash and cash equivalents at the start of the year 162,428,711 291,250,100

Cash and cash equivalents at the end of the year 224,085,825 162,428,711

-







Statutory Auditor

T.P. 173594-T


Accountant

T.P. 144154-T




(Expressed in thousand of Colombian pesos, unless otherwise stated)

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Note 1. General information

Reporting entity

Organización Terpel S.A. (hereinafter "the Company or Terpel”) is a Company domiciled in Colombia.

The registered address of the Company's office is Carrera 7 No. 75-51, in the city of Bogotá, Colombia.

The company was incorporated in accordance with the Colombian laws on November 2001, pursuant to

public deed 6038 of Notary six of Bogotá and its term expires on December 31 of the year 2090.

The Company's principal corporate purpose is the purchase, sale, acquisition at any title, import, export,

distribution and supply of hydrocarbons and its derivatives, as well as their refining, transport, storage

and packaging; and also the purchase, sale, import, export, distribution, supply, storage and land, sea or

river transport, by polyducts, oil pipelines, gas pipelines, natural gas or propane gas pipelines, or any

other type of fuel product derived or not from hydrocarbons.

For the years reported, Compañía de Petróleos de Chile Copec S.A. (Grupo COPEC) is the direct parent

company of the Company; the ultimate parent company is AntarChile S.A.

Note 2. Basis for the preparation of the separate financial statements

a) Technical Legal Framework

The separate financial statements have been prepared in accordance with the International

Financial Reporting Standards (IFRS), established in Law 1314 of 2009, regulated by the Sole

Regulatory Decree 2420 of 2015, amended by Decrees 2496 of 2015, 2131 of 2016, 2170 of

2017 and 2483 of 2018. IFRS applicable in 2018 are based on the International Financial

Reporting Standards (IFRS), together with its interpretations, issued by the International

Accounting Standards Board - IASB); the base standards correspond to those officially

translated to Spanish and issued by IASB as of the first semester of 2016.

These separate financial statements were prepared to meet the legal provisions to which the

Company is subjected to as an independent legal entity. Therefore, the separate financial

statements shall be read jointly with the consolidated financial statements of the Company and

its Subsidiaries.

For legal purposes in Colombia, the main financial statements are the separate financial

statements.




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Note 2. Basis for the preparation of separate financial statements

a) Technical Legal Framework, continuation

The separate financial statements and its notes were submitted to consideration by the Audit

Committee pursuant to Minute No. 54, dated February 26, 2019. Likewise, such separate

financial statements were approved by the Board of Directors according to Minute No. 222,

dated February 26, 2019 and by the Legal Representative, to be presented to the General

Shareholder's Meeting for approval, which it may approve o amend.

b) Measurement basis

The separate financial statements have been prepared based on the historic cost, although they

have been amended for the financial assets and liabilities measured at fair value with changes in

results and in other comprehensive income; and the assets and liabilities acquired in business

combinations, measured at fair value (Note 4).

The preparation of the separate financial statements according to IFRS require the use of certain

critical accounting estimates. It also requires that the Management exercise its judgment in the

process of applying accounting policies.

Note 6 discloses the areas that involve a higher degree of judgment or complexity or the areas

where the assumptions and estimates are significant for the separate financial statements.

c) Transactions in foreign currency

• Functional currency and presentation

Items included in the separate financial statements of the Company are expressed in the

currency of the primary economic environment where the entity operates (Colombian

pesos). The separate financial statements are presented in "Colombian pesos", which is the

functional currency of the Company and the presentation currency.

The totality of the information is expressed in Colombian pesos and has been rounded up to

the closest unit (M$), except when otherwise stated.

• Transactions and balances

The transactions in a currency that is different to the functional currency, are converted to

the functional currency using the current exchange rates as of the dates of the transaction.

Balances of assets and liabilities expressed in foreign currency as of the date of the report

are converted to the functional currency at the exchange rate of that date. The profit or loss

in the conversion are recognized in the results of the period and the equity is recognized at

the historical rate of the transaction.




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Note 3. Applied accounting policies and criteria

The following accounting policies have been applied consistently in the preparation of the separate

financial statements, in accordance with the International Financial Reporting Standards (IFRS), unless

otherwise stated.

a) Financial assets and liabilities

The Company initially recognizes the loans and accounts receivables and debt instruments

issued on the date in which they were originated.

The Company writes off a financial asset when the contractual rights on the cash flows of the

financial asset expire, or when these transfer rights to receive contractual cash flows in a

transaction in which substantially all the risks and advantages of the financial asset are

transferred, or it does not substantially retain all the risks and advantages related to the property

and does not retain the control on the transferred assets.

The Company writes off a financial liability when its contractual obligations are paid or

canceled or have expired.

A financial asset and liability will offset, so that the net value is presented in the separate

financial statement, if and only if, the Company has the right, legally enforceable, to offset the

amounts recognized and intends to settle the net value, or to realize the asset and settle the

liability simultaneously.

(a.1) Classification, recognition and measurement

The Company classifies its financial assets and liabilities in the following categories: at fair

value or at amortized cost. The classification was determined based on the business model of

the Company to manage its securities and the features of contractual cash flows of the same.

(a.1.1) Fair value

• Financial assets at fair value with changes in results

Financial assets at fair value with changes in results are financial assets different from those

classified at amortized cost and fair value with changes in the other comprehensive result.

Derivatives are also classified as acquired for negotiation unless they are designated as

hedges.




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Note 3. Applied accounting policies and criteria, continuation

a) Non-financial assets, continuation

(a.1) Classification, recognition and measurement, continuation

(a.1.2) Amortized cost

• Non-derivative financial assets

They are financial assets not derived with fixed collections or determinable that are not

traded in an active market and, over which there is no intention to negotiate in the short-

term. They are included in the current assets, except for maturities of more than twelve

months since the date of the separate financial statements. These assets are initially

recognized by their reasonable value, and subsequently at its amortized cost, using the

effective interest method. Nevertheless, credits for commercial operations with a maturity of

not more than one year and that do not have a type of contractual interest, as well as loans to

personnel, dividends receivable and disbursements required on equity securities, the amount

of which is expected to be received in the short-term, may be assessed by its nominal value

when the effect of not updating the cash flows is not significant.

• Non-derivative financial liabilities

The Company classifies non-derivative financial liabilities in the category of other financial

liabilities. These financial liabilities are initially recognized at their fair value plus any

directly attributable transaction cost. Subsequent to the initial recognition, those of more

than 12 months are assessed at the amortized cost using the effective interest method.

Liabilities for commercial operations with a maturity of not more than one year and that do

not have a type of contractual interest, the amount of which is expected to be received in the

short-term, may be assessed by their nominal value when the effect of not updating the cash

flows is not significant.

Other financial liabilities are composed of loans and obligations, debt securities issued, bank

overdrafts, commercial accounts payable and other accounts payable. Bank overdrafts that

are payable on demand and are an integral part of the Company's cash management, are

included as a cash and cash equivalent component for the separate cash flow statement,

except when they exceed the cash and equivalents balance, which are classified as other

current financial liabilities.




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a) Non-financial assets, continuation


(a.1.3) Derivative financial liabilities

• Derivative financial instruments and hedge activities

Derivative financial instruments are recognized in the separate financial position

statement as financial assets or liabilities and are assessed at their fair value from the

date in which the derivative is contracted. Changes in the fair value of derivatives are

recognized as gains or losses in profit or loss for the period, unless the derivative is

designated as a hedging instrument, in which case its treatment would be like that of a

hedging transaction.

• Hedge operations

The Company designates certain derivative financial securities as hedges, in relation to

the risks it wishes to hedge, as follows:

✓ Fair value hedges: when the purpose is to hedge the exposure to changes in the fair

value of the asset or liability recognized as a non-recognized firm commitment, or

the part identified in such asset, liability or firm commitment.

✓ Cash flow hedges: the purpose of which is to hedge the exposure to the fluctuation

of cash flows that is attributable to a specific risk related to an asset or liability

recognized as a transaction provided as highly probable.

The effective part of the profit or loss of the derivative and non-derivative hedge

instruments are recognized in other comprehensive income and is cumulative as a

hedge reserve of cash flow within the equity. The ineffective part of the profit or

loss of the hedge instrument is recognized in the period's result.

✓ Net investment hedges in a foreign business: Net investment hedges in a foreign

business are accounted for in a similar manner as cash flow hedges.




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a) Non financial assets, continuation


(a.1.3) Derivative financial liabilities, continuation

• Hedge operations, continuation

Offset of cash flow hedges

When a hedge instrument expires, is sold or no longer meets the criteria to be

recognized through the hedge accounting treatment, any cumulative earning or loss in

the equity at that date, remains in the equity and is recognized when the projected

transaction affects the separate results statement. When it is expected that it will no

longer produce a projected transaction, the cumulative earning or loss in the equity is

transferred immediately to the separate results statement.

If the Company acquires a hedge for a non-financial provision, it will eliminate the

amount of the hedge reserve of cash flows and will include it directly to the initial cost

or other amounts of the acquired asset or liability.

On the other hand, if the acquired hedge was to hedge the purchase of a financial

provision, it will maintain the earning or loss from the hedge instrument in another

comprehensive result, until the hedged provision partially or totally affects the period’s

result.

b) Issued capital

The issued capital is represented by ordinary shares, which are recorded in the equity (see Note

26).

c) Equity instruments

Investments in subordinates and joint ventures are accounted for in the books of the parent or

controlling company by the equity interest method.

d) Inventories

Inventories are assessed at the cost or net realizable value, whichever is less. The cost of

inventories is based on the weighted average.

In the case of manufactured and in process products, costs include general production costs

based on the normal operative capacity, but do not include costs for interest, nor the difference

in the exchange rate; these are recognized in the results of the corresponding period.




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d) Inventories, continuation

The net realizable value of the sale estimated during the normal course of business, minus the

termination costs and the estimated costs necessary to carry out the sale.

e) Intangible assets different from capital gains

(e.1) Software

Licenses acquired for software are capitalized based on the costs incurred to acquire and

prepare them for their specific use.

Expenses related to the maintenance of software are recognized as an expense when incurred.

Direct costs related to the development of unique, identifiable and controlled software, and

that is possible they will generate economic benefits higher than the costs for more than one

year, are recognized as intangible assets.

Direct costs include personnel expenses that develop the software and an adequate percentage

of general expenses. Costs for the development of the software recognized as assets are

amortized during the estimate useful life, which is no more than five years.

(e.2) Flagging rights and conversions

In the development of its operations, the Company incurs in cost to acquire or develop

relationships with clients; such costs correspond to any of the following situations

individually or combined:

• Cash disbursements (capital premium).

• Contributions to the execution of improvements in service stations.

• Delivery of equipment for service stations.

• Contributions for the execution o of gas engine conversions.

After executing these costs, contracts with third-party beneficiaries are signed for these

payments, thus obtaining the flagging rights with which the Company may exhibit its brand

at the service stations and the exclusivity of the sale of the products to the owners of the

service stations (retail) and, to the owners that are converted to gas.

Equipment and elements delivered to clients are for the exclusive use for the exploitation of

the Terpel brand for the duration of the contract term.




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e) Intangible assets different from capital gains

(e.3) Other intangible assets

Other intangible assets acquired by the Company have a defined useful life of 5 to 8 years,

and are valued at cost minus the cumulative impairment losses.

(e.4) Brands, distribution contracts, commercial relationships with clients and other

rights

In business combinations, the Company recognizes brands, distribution contracts, commercial

relationships with clients and other rights to which a defined useful life is assigned with

respect in terms of the duration of the contracts as intangible assets. The amortization is

linearly calculated in relation to the defined useful life. The Gazel brand is an intangible with

undefined useful life; based on the analysis of relevant factors, there is no foreseeable

limitation to the period during which it is expected that the asset generates net cash flows.

(e.5) Subsequent disbursements

Subsequent disbursements are capitalized only when the future economic benefits

incorporated in the specific asset related thereto, increases. All other disbursements, including

disbursements to internally generate capital gains and margins, are recognized in the results

when incurred.

(e.6) Amortization

Amortization is based on the cost of the asset. Intangible assets are amortized in the results

based on the linear method during the estimated useful life of the intangible assets.

The estimated useful life for the periods being reported in the separate financial position

statements are the following:

• Software 3 - 5 years

• Flagging rights (capital premium - remodeling) 3 - 12 years

• Commercial relationship with clients 3 - 10 years

• Distribution contracts 20 years

Flagging rights are amortized according to the term of the contract, in terms of cash

disbursements (capital premiums) and contribution for the execution of improvements in

service stations. With respect to the delivery of equipment or items for the stations, this is

carried out over the basis of the useful life of the equipment and for the conversions, the

relationship between the real consumption and the contractually committed consumptions.

Amortization, useful lives and residual value methods are reviewed during each fiscal year

and are adjusted if necessary.




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f) Capital gains

Capital gains arise from the acquisition of a business and are measured at costs minus

cumulative impairment losses. Capital gains related to an affiliate or a joint venture are

included in the book value of the investment and, any impairment loss is distributed at book

value of the investment accounted for in accordance with the interest method as a whole.

Capital gains are assigned to the Cash-Generating Units (CGU) that are expected to benefit

from the business combinations in which such capital gain arose, which has an indefinite

useful live and is not amortized.

g) Impairment

(g.1) Non-derivative financial liabilities

Up to December 31, 2017, a financial asset that is not registered at fair value with changes

in results, including a stake in an investment accounted for under the equity method, was

assessed on each date of the separate financial position statement to determine if there is

objective evidence of impairment, based on the incurred loss model.

As of January 1, 2018, the objective evidence that the financial assets are impaired is based

on an assessment under the expected loss scope, that seeks to recognize impairment events

in advance and ensure that it is hedged in the event of a materialization of these future

events. In this case, all instruments will have an associated provision, even those that are not

in default.

Losses are recognized in the results and are reflected in an allowance account against loans

and receivables or investment securities measured at fair value. The interests on the

impaired asset continue to be recognized. When an event that occurs after its impairment has

been recognized causes that the amount of the loss for impairment is reduced, this reduction

is reverted thus affecting the results of the period.

(g.2) Non-financial assets

The carrying amount of Company's non-financial assets, including some property, plant and

equipment and intangibles, is reviewed at each date of the separate financial position

statements to determine if there is any indication of impairment. If such indications exists,

then the recoverable amount of the asset is estimated.

Intangible assets of indefinite useful life are assessed annually. An impairment loss is

recognized if the carrying amount of an asset or the cash-generating unit (CGU) to which it

is being allocated exceeds its recoverable value.

The recoverable amount of an asset or CGU is the greater value between its value in use and

its fair value, minus the costs of sales. To determine the value in use, the estimated future

cash flows are discounted at their present value, using a discount rate that reflects the current

market assessments over the temporal value of the money and the specific risks that an asset

or CGU can have. For impairment assessment purposes,




21


g) Impairment, continuation

(g.2) Non-financial assets, continuation

assets that cannot be individually tested are grouped into the smallest group of assets that

generate cash inflows from continuing use, which are independent from cash inflows from

other assets or CGUs.

Impairment losses are recognized in the results. On the other hand, impairment losses

recognized in relation to the CGUs are assigned first, to reduce the carrying amount of any

capital gain assigned in the units (or groups of CGUs), to then reduce the carrying amount of

other assets in the unit (or group of CGUs) on a pro rata basis.

An impairment loss in relation to capital gains is not reversed. For other assets, an

impairment loss is reversed only to the extent that the carrying amount of the asset does not

exceed the carrying amount that would have been determined, net depreciation or

amortization, had no impairment loss would have been recognized.

h) Property, plant and equipment

It is mainly comprised of land, plants and equipment, buildings and ongoing constructions.

Property, plant and equipment items are recognized at cost, less accumulated depreciation

and impairment losses. The cost includes amounts that are directly attributable to the

acquisition of the asset. The subsequent measurement for property, plant and equipment

items is at cost.

Subsequent costs are included in the initial asset value or recognized as a separate asset only

when it is probable that future economic benefits associated with the property, plant and

equipment will flow to the Company and the cost of the item can be reliably determined.

Major equipment maintenance or repairs, where a major replacement of parts is conducted,

will be capitalized, if the equipment subject to repair can be financially identified, in such a

way that the equipment can be written off and the costs incurred activated as new

equipment; otherwise, they will be recognized in the separate results statement as an

expense of the period incurred.

Property, plant and equipment items are depreciated from the date in which they were

installed and ready for use or, in the case of internally build assets, from the date in which

the asset is completed and is in suitable conditions for use, using the linear method, based on

the estimate useful lives of each component. Land does not depreciate.




22


h) Properties, plant and equipment, continuation

The estimated useful lives for the current and comparative periods of the significant items of

property, plant and equipment are the following:

Amortization, useful lives and residual value methods are reviewed during each fiscal year and

are adjusted if necessary.

Losses and profit for the sale of property, plant and equipment are calculated comparing the

risks obtained in the sale with the net carrying amount. These are included in the separate

results statement.

i) Investment properties

Investment properties are real estate held with the purpose of obtaining income from leases or

to obtain capital appreciation in the investment or both at the same time, but not for the sale in

the ordinary course of business, use in the supply of goods or services, or for administrative

purposes. Investment properties increase their value under the cost model.

The cost includes amounts that are directly attributable to the acquisition of the investment

property.

Any gain or loss on the sale of an investment property (calculated as the difference between the

net income of the transaction and the carrying amount of the item), is recognized in the results.

When the use of the real estate changes, it is reclassified as property, plant and equipment and

its carrying amount, as of the date of the reclassification, is converted to its cost for subsequent

accounting.

Constructions and buildings 50 years

Plants and equipment

Polyducts, plant and networks 50 years

Machinery and equipment - Tanks in supply plants 50 years

Machinery and equipment - Tanks located in EDS 30 years

Machinery and equipment - different to tanks located in plants 20 years

Machinery and equipment - different to tanks located in EDS 15 years

Fixed installations and fixtures, net

Furniture and appliances and office equipment 10 years

Improvement to properties owed by others 12 years

Information technology equipment, net

Computer and communication equipment 5 years

Medical scientific equipment 5 years

Motor vehicles, net

Fleet and transportation equipment different from Refueller 5 years

Fleet and Refueller transportation equipment 12 years

Fleet and river equipment 5 years




23


j) Provisions

The Company recognizes a provision if, as a result of a past event, it has the legal or implied

obligation to estimate it in a reliable manner and it is probable that an outflow of economic

benefits is necessary to offset the obligation. Provisions are determined by discounting the cash

flow that is expected in the future, the interest rate that reflects the actual assessment of the

market of the value of money in time and the specific risks of the obligation. The reversion of

the effect of such discount is recognized as a financial cost.

k) Benefits to employees

Obligations for benefits to employees in the short-term are measured on a non-discounted basis

and are recognized as expenses to the extent that the related service is provided. An obligation

is provided for the amount that is expected to pay for the short-term cash bond or the

participation plans of the employees in the profits, if the Company has a current legal or

constructive obligation to pay this amount as a result of a service delivered by the employee in

the past, and the obligation can be reliably estimated.

(k.1) Retirement pensions

The obligation for retirement pensions represents a present value for all future expenses that

the Company is required to pay to those employees that meet certain legal requirements

with respect to age, time of service and others, determined based on actuarial studies and

prepared in accordance with the current laws.

Note 25 shows the amount of the obligations for benefits to employees.

l) Transactions with related parties

A related party is a person or entity that is related to the Company, which could be an

individual if this person is exercising its functions, exercises control, significant influence or is

a member of key personnel of the company’s management that is reporting.

The company will disclose information about related parties, transactions, pending balances,

including commitments, and will be removed from the consolidated financial statements

m) Classification of balances in current and non current

The Company presents current and non-current assets as a separate category in the financial

position separate statement, as well as current and non-current liabilities. In the separate

financial situation statement assets and liabilities will be classified according to their maturity;

current assets and liabilities will be those that meet the following conditions:




24


m) Classification of balances in current and non-current, continuation

• It is expected to realize the asset or set off the liability in its normal cycle of operation,

twelve months after the date of the period that is being reported.

• The asset or liability is maintained, mainly, for negotiation purposes.

• The asset is cash or cash equivalent, unless it is restricted and cannot be exchanged nor

used to offset a liability for a period of minimum twelve months after the period being

reported.

• It does not have an unconditional right to postpone the offset of the liability during,

unless, the following twelve months after the date of the period being reported.

The deferred tax asset or liability is classified as non-current.

n) Tax on profit and deferred taxes

The expenses or income for taxes include income and current and deferred complimentary

taxes. Current and deferred taxes are recognized in the results, except when related to entries in

another comprehensive result or directly in the equity, in which case, the current or deferred tax

is recognized in other comprehensive result or directly in the equity, respectively.

(n.1) Current tax

Current tax is the amount payable or to recover for income tax; it is calculated based on the

applicable tax laws or approved as of the date of the separate financial position statement.

Management frequently evaluates the position assumed in tax returns, with respect to the

situations in which the tax laws are subject to interpretation and, if necessary, constitutes

provisions about the amounts that it is expected to pay to the tax authorities.

(n.2) Deferred tax

Deferred tax is recognized by the temporary differences existing between the carried amount

of assets and liabilities for purposes of financial information and the amounts used for tax

purposes. Deferred tax is not recognized for:

• The initial recognition of an asset or liability in a transaction that is not a business

combination, and that did not affect neither the accounting or taxable profit or the loss.

• The Company can control the moment of the reversion of all temporary differences with

respect to investments in subordinates, associated and participation in joint ventures, for

which no deferred taxes have been recognized and it is probable that these temporary

differences do not revert in a foreseeable future.

• Taxable temporary

• differences that arise from the initial recognition of a capital gain.




25


n) Tax on profit and deferred taxes, continuation

(n.2) Deferred tax, continuation

The measurement of deferred taxes reflects the fiscal consequences that would arise from the

manner in which the Company expects, at the end of the period being reported, to recover or

set off the carrying amount of its assets and liabilities.

Deferred tax is recognized at the taxable rates that are expected to be applied in the

temporary differences when they are reversed, based on the laws that have been approved as

of the date of the separate financial position statement.

Deferred tax asset is recognized for the non-utilized tax losses, tax credits and deductible

temporary differences, to the extent that it is probable that the future taxable profits are

available against those that can be used. Deferred tax assets are reviewed on the date of each

separate financial position statement and are reduced to the extent that it is not probable that

the related tax benefits are realized.

Assets and liabilities for deferred taxes are offset if the right to offset assets and liabilities for

current taxes is available and the deferred taxes relate to the same fiscal authority.

o) Distribution of dividends

The distribution of dividends to the Company's shareholders is recognized as a liability in the

period in which the dividends are approved by the General Shareholders Assembly.

p) Recognition of income

As of January 1, 2018 income is recognized to the extent that:

• Performance obligations contractually acquired are met through the delivery of

promised goods or services.

• It is probable that economic benefits flow towards the Company.

• Income and costs can be reliably measured.

Income is measured based on the specified consideration in the agreement with the client that

represents a transfer of committed goods or services in exchange of an amount that reflex the

consideration to which the Company expects to have a right to.

The Company recognizes income according to the basic principle through the application of the

following stages: (a) Identification of the agreement. (b) Identification of the performance

obligations. (c) Definition of the transaction price. (d) Distribution of the price among

performance obligations. (e) Recognition of income.




26


p) Recognition of income, continuation

(p.1) Sale of goods and services

For the sale of products, income is generally recognized when these are delivered to the clients,

which is carried out at the point of time in which the client accepts the goods and the risk and

related benefits are transferred to the client, thus complying with the performance obligations

acquired in the agreement.

The income for the provision of services is recognized in the results of the period once these

have been provided.

For the period ending on December 31, 2017, income from the sale of goods and services

during the normal course of ordinary activities, is recognized at the fair value of the entry

received or receivable, net returns, discounts, bonuses or commercial discounts.

Income was recognized when significant risks and advantages derived from the ownership of

the goods are transferred to the client, the services were provided and, it is probable that they

receive the economic benefits associated to the transaction, the costs incurred or to be incurred

in the transaction can be measured reliably and there was no implication for the Company for

the current management of the sold goods is kept for itself.

(p.2) Income from interests

Income from interest is recognized using the effective interest method.

(p.3) Income from dividends

Income from dividends is recognized when the right to receive the payment is established.

q) Expenses by function

In the separate results statement, expenses are classified according to their function as part of

the cost of sales, cost of distribution or administrative activities, thus separately disclosing the

costs of sales from other expenses. Costs for distribution activities are those incurred for the

sale of the Company's products and services.




27


r) Leases

(r.1) Determination if an agreement contains a lease

When an agreement is subscribed, the Company determines if that agreement corresponds to,

or contains a lease; it will be in this manner if the following two criteria is met:

✓ The performance of the agreement depends on the use of a specific asset or specific

assets; and

✓ The agreement includes the right to use the asset or assets.

At the time of the subscription or assessment of the agreement, the Company separates the

payments and other items required by the agreement between those that correspond to the lease

and those that are related to other elements, based on their relative fair values.

(r.2) Leased assets

Lease of goods agreements that transfer to the Company substantially all the risks and

advantages related to the property, are classified as financial leases. On initial recognition, the

leased asset is measured at the lower of its fair value and present value of the minimum lease

payments.

Assets maintained under other leases are classified as operating leases and are not recognized

in the separate financial position statement of the Company.

(r.3) Payments for leases

Payments made under operating leases are recognized in the results under the linear method

during the lease term.

Payments made under financial leasing are distributed between financial expenses, which are

recorded in the results, and the reduction of pending liabilities.

If the Company concludes that for a financial lease it is impracticable to separate payments

reliably, an asset and a liability will be recognized for an amount equal to the reasonable value

of the underlying asset. Subsequently, the liability is reduced to the extent that payments are

made and a financial cost attributed to the liability is recognized using the incremental interest

rate.

s) Separate cash flow statement

The separate cash flow statement registers the cash movements made during the period,

determined by the direct method. In the separate cash flow statement the following expression

are used:




28


s) Separate cash flow statement, continuation

• Cash flows and cash equivalents: Cash inflows and outflows or other equivalent means,

these being understood as term investments of great liquidity less than three months and low

risk of alterations in their value.

• Operating activities: Are activities that constitute the main source of ordinary income, as

well as other activities that cannot be classified as investment or financing.

• Investment activities: Acquisition, transfer or disposal by other means of non-current assets

and other investments not included in the cash and its equivalents.

• Financing activities: Activities that produce changes in the size and composition of the total

equity and the liabilities of financial nature.

t) Cash and cash equivalents

Cash and cash equivalents include cash in hand, term deposits with credit entities, other short-

term investments of high liquidity with original maturity of three months or less. Additionally,

overdrafts will be part of the cash management; therefore, they are included as cash and cash

equivalent components with their corresponding revelation.

u) Profit from shares

The Company calculates the basic profit from stocks as the ratio between the profit (loss) net of

the attributable period and the average medium number of ordinary stock of the same

outstanding shares during that same period.

Possible ordinary shares will be treated as diluted when, and only when, their conversion in

ordinary shares could reduce the profit from stocks or increase the losses from stocks of the

continuing activities.

When the possible ordinary shares of subordinates, joint ventures or associates have a diluted

effect over the basic profit from shares of the Organization, they shall be included in the

calculation of the profit from diluted shares.

v) Costs from loans

Costs from general and specific interests of loans directly attributed to the acquisition,

construction or production of qualified assets, are assets that require a substantial period before

being ready for the use that they are destined to or sale, are added to the cost of those assets,

until the time in which the assets are prepared for their intended use or sale.




29


v) Costs from loans, continuation

When there is income for interests that arise from investments obtained in the provisional

investments of the specific loans that are to be invested in qualified assets, these are deducted

from the costs for interests eligible for capitalization.

All other costs for interests are recognized as income or expenses in the period in which they

are incurred.

w) Assets and liabilities available for sale

Non-current assets, or groups of assets for disposal composed of assets and liabilities, are

classified as kept for sale if it is highly probable that they will be recovered, mainly through the

sale and not the continuous use.

Immediately before their classification as kept for sale, the assets or components of a group of

assets for disposal, are assessed according to the other accounting policies of the Company.

Such assets, or groups of assets, are measured at the lesser cost between their carrying value

and the reasonable value minus the costs of sale. Losses for impairment in the initial

classification of assets are kept for sale and the subsequent profit and loss that arises after the

re-measurement, are recognized in the results.

When they have been classified as held for sale, intangible and property, plant and equipment

assets do not continue to amortize or depreciate, and the investees accounted for under the

participation method, are no longer accounted for under this method.

x) Business combinations

The Company recognizes each business combination through the acquisition method; the

application of this method requires:

a) Identification of the acquirer;

b) Determination of the acquisition date;

c) Recognition and measurement of identifiable assets acquired, liabilities assumed and any

other non-controlled participation in the acquired; and

d) Recognition and measurement of capital gains or profit for purchase under very

advantageous terms.

(x.1) Identification of the acquirer

It is the entity that obtains control of the acquiree; and, generally, it is the entity that transfers

the cash or other assets or incurs in liabilities, and that which the size of its assets, income from

ordinary activities, is significantly higher than the other or other entities being combined. When

there is a business combination that involves more than two entities, the size of the entity is to

be considered to identify the acquirer.




30


x) Business combination, continuation

(x.2) Determination of the acquisition date

It is the date in which the control in the acquired is obtained; it is generally when the acquiree

legally transfers the consideration and acquires the assets and assumes the liabilities of the

acquired.

(x.3) Recognition and measurement of acquired identifiable assets, the obligations

assumed and any non-controlling participation in the acquired entity

As of the date of the acquisition, the acquiree will recognize separately the capital gains,

acquired identifiable assets, liabilities assumed and any non-controlling participation in the

acquired. The acquiree will measure the acquired identifiable assets and liabilities assumed at

their fair value on the date of their acquisition.

(x.4) Recognition and measurement of capital gains

Commercial credits represent an excess between the transferred consideration and the fair value

of the Company’s stake in the net identifiable assets that the acquired subsidiary at the date of

the acquisition, i.e., commercial credits are:

Fair value of the transferred consideration

+ Any non-controlled interest

- The fair value of the net identifiable assets (acquired assets and liabilities assumed)

= Commercial Credit

y) Impact in new standards

Except for the changes mentioned below, the Company has consistently applied the accounting

policies for all periods presented in these separate financial statements.

The Company initially applied IFRS 15 and IFRS 9 as of January 1, 2018.

y.1) IFRS 15 Revenue from contracts with customers

The Company has adopted IFRS 15 using the cumulative effect method, with the effect of the

initial application of this standard recognized on the date of the initial application, i.e., on

January 1, 2018. Therefore, the information presented for 2017 has not been re-expressed and

continues being reported according to IAS 18 and related interpretations.




31


y) Impact of new standards, continuation

y.1) IFRS 15 Income from contracts with customers, continuation

The Company completed its qualitative and quantitative analysis of the impacts in the adoption

of IFRS 15 in the separate financial statements. The evaluation included among others, the

following activities:

• Analysis of contracts with customers and their main characteristics.

• Identification of the performance obligations in the mentioned contracts.

• Determination of the prices of transactions and effects caused by the variable

considerations.

• Assignment of amounts of the transactions to each performance obligation.

• Analysis of what is appropriate at the time in which the income shall be recognized by

the Company, whether at a point in time or during time.

• Analysis and changes in the processes originated by the adoption of IFRS 15.

Recognition of income according to the types of performance obligations

a) Sale of goods from fuel and/or lubricant supply contracts.

According to IFRS 15, income from these contracts is recognized when a client obtains

control of the goods during time or at a given moment. In these types of performance

obligations, no difference were identified that materially change the opportunity for

recognition of income according to IFRS 15 compared to the recognition of income under

IAS 18.

b) Provision of services from fuel supply and/or lubricant contracts.

In the provision of services, the Company separately recognizes the income from the sale of

fuel and/or lubricants. Some of these obligations are the management of inventories at

client facilities, logistic services to maintain the availability of fuels and/or lubricants, the

distribution of these products and the custody services of the same. The Company

recognizes the total consideration of the service contracts based on their independent sale

prices, whereby from the application of IFRS 15, the Company did not identify significant

differences in the opportunity of recognition of income for these performance obligations

with respect to IAS 18.

As of January 1, 2018, the Company did not recognize an impact in the adoption of this

standard in the equity, based on the evaluation of contracts realized to the different lines of

business.




32



y.1) IFRS 15 Income from contracts with customers, continuation

The Company periodically analyzes new contracts with customers concluding that as of

December 31, 2018 no significant potential impact has been identified related to: (i) changes

in transactions; (ii) identification of “performance obligations” (transfer of goods or services

obligations in contracts with customers), different to those currently identified.

y.2) IFRS 9 - Financial instruments

On July 2014, IASB issued the final version of IFRS 9 Financial instruments which replaces

IAS 39 “Financial instruments: recognition and measurement” and all prior versions of

IFRS 9. This standard is part of Annex 1.1 of Decree 2420/2015, added by Decree

2496/2015, applicable for the periods that initiated on January 1, 2018, allowing for its

anticipated application. IFRS 9 includes three accounting aspects of financial instruments:

classification and measurement, hedge accounting and value impairment.

a) Classification and measurement

The Company classifies in commercial accounts receivable those that are maintained to

collect contractual cash flows and are expected to generate cash flows that represent only

capital and interest payments complying with the measurement criteria of the amortized cost

according to IFRS 9.

b) Hedge Accounting

The Company determined that the hedge relations existing as of January 1, 2018, will

continue to qualify for the hedge accounting under IFRS 9, taking into account that this

standard does not change the general principals about how an entity accounts for effective

hedges, the application of the hedge requirements under IFRS 9 does not have a significant

impact in the separate financial statements.




33

Applied accounting policies and criteria, continuation


y.2) IFRS 9 - Financial instruments, continuation

c) Impairment of value - Financial assets and assets from contracts

The expected loss of focus pretends to recognize impairment events in an anticipated

manner and ensure to the institution that there is coverage in the event of any materialization

of those future events.

Under this modality, all securities will have a related provision, even those that have not

expired, which does not occur in incurred loss models.

The definition of breach depends on the type of document and the segments of the portfolio,

given the differences in terms and frequency of payments and different billing conditions

among clients. Default limits were established with the understanding that the business and

the payment behavior of the clients, in the different portfolios and channels.

The expected loss is a quantification of the level of losses to which the institution is

exposed, on average, in the horizon of a defined term, whether it is 12 months or during the

life of the assessed financial instruments.

The Company can determine that the credit risk of a financial asset has not significantly

increased if the asset has a low credit risk as of the date of presentation.

Estimated expected credit losses were calculated based on the experience of real credit loss

according to the observed period defined that on average covers January 2012 to October

2017. During this period, calculations and analysis of variables to consider where made, and

also the corresponding exclusion criteria was applied.

The Company established a model of expected loss according to the requirements of IFRS 9

as a methodological manual for the calculation of the provision, with which the monthly

calculation of the provision is made.

The impact in the adoption of IFRS 9 in the separate financial statements as of January 1,

2018, amounted to M$1.255.456 and are related only to the new impairment requirements.




34



y.2) IFRS 9 - Financial instruments, continuation

c) Impairment of value - Financial assets and assets from contracts, continuation

z) New standards and interpretations

z.1) New applicable standards and amendments as of January 1, 2019

According to the provisions set forth in Decree 2170 of December 2017 and 2483 of 2018,

below is a list of the standards issued and applicable as of 2019. The impact of these

standards is currently under evaluation by the Company’s management; nevertheless, in

aa1) the preliminary impacts of IFRS 16 - Leases, are detailed.

Balance as of

31/12/2017

M$

Impact in the adoption

of IRFS 9 as of

01/01/2018

M$

Balance as of

1/01/2018 post

adoption

M$

Asset 404,358,526 (1,255,456) 403,103,070

Equity 1,677,263,030 1,255,456 1,676,007,574




35


z) New standards and interpretations, continuation

z.1) New applicable standards and amendments as of January 1, 2019, continuation

aa) Non current issued standards

aa1) IFRS 16 - Leases

Financial Reporting Standard Subject of the standard or amendment Details

IFRS 16 - Leases Recognition, measurement,

presentation and information to disclose

from leases

IFRS 16 for Leases establishes the principles for the recognition,

measurement, presentation and information to disclose from leases.

The objective is to insure that the tenants and landlords provide the

relevant information so that it truly reflects those transactions. This

information provides a basis to users of the financial statements to

asses the effect that the leases have in the financial position, the

financial performance and the cash flows of the entity.

IAS 40 – Investment properties Investment properties transfers Modifies paragraph 57 so that it reflects the principle that a change

of use would mean that (a) an assessment of if a property complies,

or is not in compliance, the definition of investment property; and

(b) Through the application of this principle, an entity will transfer

the properties under construction or development to, or from,

investment properties when, and only when, there is a change of use

of this property supported by evidence.

Financial Reporting Standard Subject of the standard or amendment Details

Amendments to IFRS 12 Information to

disclose about participations in other

entities.

Clarification to the scope of the standard.

Amendments to IAS 28 Investments in

affiliates and joint ventures

Measurement at reasonable value of an affiliate or joint venture.

Amendments to IAS 28 Long-term participations in affiliates and

joint ventures

The amendments clarify that companies account for long-term

interests in an affiliate or joint venture, to which the participation

method does not apply, using IFRS 9.

Yearly Improvements to

2014 - 2016 IFRS Cycle Standards




36

IASB issued the final version of IFRS Leases which replaces IAS 17, with IFRIC 4, SIC 15 and

SIC 27. This standard establishes the principles for recognition, measurement, provision and

disclosure of leases and requires lessees to account for all their leases under the same balance

model similar to the accounting under IAS 17 of financial leases. The standard includes two

exemptions for recognitions for lessees: lease of assets of low amount (for example, personal

computers) and short-term leases (i.e., leases with a term of less than 12 months).

At the beginning of the lease, the lessee will recognize a liability for the payment of the

monthly rent (liability for leases) and an asset that would represent the right to use the

underlying asset during the term of the lease (right of use of the asset). The lessees shall

recognize separately the expenses for interests of the liability for leases and the expenses for

depreciation of the right to use.


aa) Non-current issued standards, continuation

aa1) IFRS 16, Leases, continuation

Lessees shall also remedy the liability for lease as of the occurrence of certain events (for

example, a change in the lease term, a change in the future monthly rents as a result of a change

in the index or rate used to determine such monthly rents). The lessee generally shall recognize

the amount of the remedy of the liability for lease as an adjustment in the asset for right to use.

The lessees accounting under IFRS 16 does not have any substantial changes with respect to

those made under IAS 17. Lessees shall continue to classify all their leases using the same

classification principles of IAS 17, between financial and operative leases.

Transition Options

The Company will adopt IFRS 16 “Leases” for the first time using the amended retrospective

method that does not require the re-expression of figures previously presented, will make the

transition retroactively with the cumulative effect of the initial adjusted application (as

applicable) as an opening balance of the cumulative profit earnings as of January 1, 2019.




37

Regarding the exemptions allowed by the standard, the Company takes into account the

expectations of an extension to the contracts and has defined as lesser amount assets those less

than or equal to USD15.000.

In compliance with the transition section of the standard, a liability and asset for right of use

will be recognized as of January 1, 2019 for leases previously classified as operative leases. The

Company shall measure this liability for the present value of the payments from remaining

leases, discounted using the incremental rate determined as of the date of initial application and

the asset for the right of use will correspond to the amount of the liability for lease plus the

payments for leases made in advance.

From the current accounting policy, the recognized assets for right of use, shall be subsequently

measured applying the cost model; minus the cumulative depreciation and cumulative losses for

impairment of value, adjusted by any new measurement of the liabilities for leases.


aa) Non-current issued standards, continuation

aa1) IFRS 16, Leases, continuation

During 2018, the Company made a preliminary evaluation of the impact of IFRS 16; based on

the progress of the project, the identified impacts as of this date are:

The Company, together with its advisors, is currently evaluating the applicable discount rate, as

well as other contractual aspects which will determine the final value of the impact that will be

recognized as of January 1, 2019. Based on the preliminary analysis and aspects mentioned

above, a relevant impact is not expected for the Company’s financial leases, recognized initially

under IAS 17. The final impacts of the implementation of IFRS 16 will be known once the

project has been completed.

The Company does not expect that the adoption of IFRS 16 will affect its capacity to meet the

loan “covenants” of maximum leverage limit.

Note 4. Acquisition of investments and business combinations

Asset Liability

Organización Terpel S.A. 190,234,445 189,768,338

M$




38

On November 16, 2016, the Compañía de Petróleos de Chile Copec S.A. (Direct controller of the

Group) signed a regional sales agreement for an approximate amount of MUSD747.000, with Mobil

Petroleum Overseas Company Limited and ExxonMobil Ecuador Holding BV, through which the

distribution of Mobil brand fuels and lubricants is acquired in the markets of Colombia, Ecuador and

Peru, and the fuel supply business of the Lima International Airport, Peru. This agreement was assigned

in favor of the Company and was authorized by the Superintendence of Industry and Commerce (SIC)

through Resolution No. 9915 of February 15, 2018, where it allowed business integration with some

structural constraints. Among others, the authority imposed:

a) That Terpel, once the operations in ExxonMobil in Colombia are acquired, proceeds in the least

possible amount of time, to resell to a provisional buyer the fuel business that operates said

company in this country.

b) This transitory buyer, as defined by the SIC, must be the one who continues to develop the

operations of ExxonMobil Colombia S.A., while the final sale of the fuel business of ExxonMobil

de Colombia S.A. is completed.

c) On its part, Terpel, within 9 months, should sell to a third-party the lubricant factory in

Bucaramanga, its own lubricant brands directed to the industrial segment (Maxter and Maxter

Progresa); and shall assign the part corresponding to the industrial products of the contracts with

customers of this segment related to those brands.

Note 4. Acquisition of investments and business combinations, continuation

d) Once Terpel has made the divestment in the lubricants business described in the previous

paragraph, the transitory buyer will transfer to Terpel exclusively the assets associated with the

lubricants business.

e) This transitory buyer shall sell to a final third-party the fuel business of ExxonMobil de Colombia

S.A. within a term of 9 months, without counting the term, if required, by the Superintendency of

Industry and Commerce (SIC), for the final approval of such sale. Thus, Terpel will not operate

nor have any interference at any time over the fuel business of ExxonMobil de Colombia S.A.

For the transaction, Organización Terpel S.A., in June 2017, advanced the registration in the

commercial registry of the configuration of the control situation over the company Organización Terpel

Corporation, a subsidiary incorporated in the British Virgin Islands, responsible for carrying out the

acquisition of certain downstream operations of ExxonMobil in Colombia, Peru and Ecuador, through

ExxonMobil Andean Holding LLC. (Today Organización Terpel Andina LLC.). However, the business

combination will be made directly from Organización Terpel S.A., taking into account that the

Company transferred the cash for the payment of the acquisition of the business and retains the control

and exposure to the variability of the returns of the acquired companies, and the structuring was made

from the vehicles of the Company.

With respect to the operation of ExxonMobil Colombia S.A., on March 15, 2018, 100% of the shares

that ExxonMobil Andean Holding LLC and ExxonMobil del Perú SRL had in that company, for an

amount of MUSD287.486, were sold to the two (2) autonomous trusts FAP PEGASO I and FAP

PEGASO II, authorized by the SIC as transitory buyer and whose spokesperson was Credicorp Capital

Fiduciaria SA, entities responsible for managing the Company with absolute independence.




39

As source of financing, Organización Terpel S.A. took a syndicated loan with the following Banks:

BBVA S.A., Bancolombia S.A., Banco de Bogotá S.A. and Davivienda S.A. for the amount of

COP$1.675.500 million, funds that were transferred to Organización Terpel Corporation for the amount

of MUSD538.000, as an advance for future capitalizations, which generated an increase in the value of

the investment in Organización Terpel S.A.

Additionally, Organización Terpel Corporation obtained a loan with Banco Citibank S.A. for an amount

of MUSD168.500 for a total of MUSD706.800, corresponding to the acquisition of ExxonMobil

Andean Holding LLC (today Organización Terpel Andina LLC). For its part, Organización Terpel S.A.

directly transferred MUSD8.000 for the purchase of ExxonMobil Ecuador (today Terpel Comercial

Ecuador Cia. Ltda.) for a total of the transaction for MUSD714.800.

ExxonMobil Andean Holding LLC (today Organización Terpel Andina LLC.), had cash with which,

after the takeover, the loan that Organización Terpel Corporation obtained with Banco Citibank S.A. for

MUSD168.500 was paid.


For this transaction and in order to hedge the exchange risk, it was decided to obtain a Non-Delivery

Forward (NDF) in March 2017 with Banco BBVA S.A. worth MUSD747.000. The average weighted

forward rate was $3.004,15 (USD/COP). As part of the acquisition, on June 22, 2017, the receipt of

some resources (cash) was confirmed for an amount estimated initially of MUSD250.000, where it was

authorized to anticipate and settle NDF contracts for an amount of MUSD250.000 at a weighted

reference rate of $3.022.06 (USD/COP), generating an offset in favor of the Company for M$6.826.658

after taxes.

Additionally, on October 3, 2017 the management negotiated USD55.000.000 additional in hedge given

that it received more detailed information about the net cash of the asset to be acquired and the amount

to be paid.

Once the transaction was authorized and the closing date was set (March 15, 2018), on March 6 it was

decided to anticipate the contracted hedge, in 11 days on average, thus maintaining the forward rate at

3.065,89 (COP/USD).

The compliance and offset of the hedge was made between March 12 and 13, 2018 with a TRM of

2.851,84 and $2.848.38; respectively, generating an effect of M$119.094.200.

With the offset of the hedge, the Company's result was impacted by M$59.547.100, which corresponds

to 50% of ExxonMobil Colombia's business acquired as a financial asset, whose shares were sold to the

aforementioned autonomous trusts.

The other 50% of the offset of the hedge is part of the transaction price for the businesses of

ExxonMobil del Perú SRL (today Terpel Comercial del Peru SRL), ExxonMobil Peru Aviation SRL

(today Terpel Aviación del Perú SRL) and ExxonMobil Ecuador (today Terpel Comercial Ecuador Cia




40

Ltda.), acquired as non-financial assets, recognized as a higher value of the acquired asset; that is, a

greater value in the investment of Organización Terpel Corporation in the separate statement of

financial position.

As mentioned above, the shares representing the share capital of ExxonMobil Colombia S.A. were sold

to FAP PEGASO I and FAP PEGASO II represented by Credicorp Capital Fiduciaria S.A., who in turn

sold them on November 30, 2018 to Inversiones Primax S.A.S. and Primax Holdings S.A.S., both

companies belonging to Primax Corporation and Grupo Romero for an amount of MUSD$231.900,

subject to the usual adjustments in these types of transactions (see note 9).

Below is a detail description of these investments:


(1) Investment vehicle constituted for the acquisition of the underlying investments in Terpel

Comercial del Perú S.R.L. and Terpel Aviación del Perú S.R.L., (formerly ExxonMobil Perú

and ExxonMobil Perú Aviación), through the vehicle Organización Terpel Andina LLC.,

(formerly ExxonMobil Andean Holding LLC). Organization Terpel Corporation has reinstated

to Organización Terpel S.A. the sum of M$840.580.682 as part of the advance for future

capitalization.

4.1. Acquisition of the lubricant business in Colombia

On July 3, 2018, the Company finalized the purchase of the lubricant business of ExxonMobil

Colombia S.A. (today Distribuidora Andina de Combustibles S.A.). This business includes the

factory located in the city of Cartagena, the contracts associated with that business, the inventories,

the containers, the raw material, the laboratory equipment, the equipment of the distribution center

and the shares of the company ExxonMobil de Colombia Sociedad Portuaria S.A. (today Puertos

del Caribe Sociedad Portuaria S.A.), among others.

With the aim of maintaining standards of production and commercialization of Mobil lubricants,

the Company independently hired the personnel related to these processes, without assuming

contingencies of labor type contingencies, thus ensuring the transfer of knowledge of these

businesses..

a) Identified acquired assets and assumed liabilities

The carrying amounts of the net assets acquired are presented below.

15 de marzo

2018

M$

Organización Terpel Corporation (1) 1,536,932,521

Terpel Comercial Ecuador Cia Ltda. (before, ExxonMobil Ecuador) 27,387,603

Total Investments 1,564,320,124




41


4.1. Acquisition of the lubricant business in Colombia, continuation

a) Identified acquired assets and assumed liabilities, continuation

The process of valuation of the PPA (Purchase Price Allocation), led to identify that the Company

has the right to the contract for the manufacture and distribution of lubricants under the Mobil

brand in Colombia, for which a purchase is presented under advantageous conditions, which

allowed to recognize an income of M$83.009.592.

The purpose of this acquisition was to execute the Company’s expansion strategy. This operation

allows to increase the participation of lubricants in Colombia.

4.2. Guarantees provided

Section 24.6 of Resolution No. 9915 of February 15, 2018 refers to the compliance policy to which

Organización Terpel S.A., ExxonMobil de Colombia S.A. and the Autonomous Trust (Transitory

Purchaser) are obliged to grant individually that could be a bank guarantee, a promissory note or a

performance insurance in favor of the Superintendence of Industry and Commerce, for an amount

of one hundred thousand current legal minimum monthly salaries (100.000 SMMLV).

7/3/18

Acquired assets M$

Inventories 136,843,768

Intangible assets different from capital gains 5,762,470

Property, plant and equipment 152,388,572

Other 207,000

Distribution contrat 246,627,023

Total 541,828,833

Acquired liabilities

Indemnity agreement (Cerrejón) 20,740,105

Liability for deferred taxes 77,616,590

Total 98,356,695

Net acquired assets 443,472,138

Profit (purchase in advantageous conditions) (83,009,592)

Total 360,462,546

Sale assets lubricant factory Bucaramanga (44,212,833)

PPA Price re-assignment (57,760,687)

Cash used in the acquisition 258,489,026




42

This performance insurance will be effective if one of the structural conditions imposed by the

Superintendency of Industry and Commerce (SIC) is breached, as established in resolution 9915 of

February 15, 2018.

The Company signed a promissory note in accordance with the authorization of the Board of

Directors, which did not become effective, according to the report received by the auditor

designated by the Superintendence of Industry and Commerce, the Company did not present any

breaches.

4.3. Measurement of fair values

For the measurement, under IFRS 3, of the fair value of the assets acquired and liabilities assumed

in the purchase of the Colombian lubricants business, the three generally accepted approaches to

assess assets and interests in a business were taken into account and are described as follows:

Income approach

The income approach focuses on the income production capacity of the identified asset or business.

The underlying premise of this approach is that the value of an asset or business can be measured

by the present value of the net economic benefit (cash income minus cash disbursements) to be

received throughout its life. The discounted cash flow and capitalization methods are commonly

used to estimate the value of companies, intangible assets and real estate assets that produce

income, such as commercial office buildings.


4.3. Measurement of fair values, continuation

Some variations of the income approach are detailed below:

• The multi-period excess earnings method (MEEM) is a specific application of the DCF

Discounted Cash Flow method. The principle behind the MEEM is that the value of an

intangible asset is equal to the present value of the incremental cash flows after taxes

attributable only to the intangible asset in question after deducting the tax charges for assets.

The principle behind a tax burden of assets is that a hypothetical third party "rents" or "rent"

all the assets it requires to produce the cash flows resulting from the intangible asset, that

each project rents only those assets it needs (including capital gain elements) and not those

that do not need, and that each project pays the owner of the assets a fair return on (and,

when appropriate) the value of the leased assets.

• The basic principle of the RFR Relief from Royalties method is that, without the ownership

of the intangible asset in question, the user of that intangible asset would have to make a flow

of payments to the asset owner in exchange for the rights of use of said asset. When

acquiring the intangible asset, the user avoids these payments. Within the Direct Cash Flow

Method, the expected cash flows can be allocated directly to the asset and discounted at an

appropriate discount rate. The cost saving method is a specific application of the DCF

Discounted Cash Flow method. The basic principle of the Cost Saving Method is that the

intangible asset gives its owner a cost saving on the next best available alternative, which is

estimated in a discrete period and discounted at its current value.




43

Market approach

Through the market approach, the value of an asset or business is estimated from the comparison

of the asset or business under analysis with another asset or business belonging to the same

industry, which carry out similar activities, which are listed on the stock exchange, which

participate in a public offering operation, or that are the subject of a private transaction.

Within the framework of this approach, there are two methods usually applied: the method of

quotes from comparable companies and the method of preceding transactions.

Costs Approach

The cost approach bases its estimate of the fair market value range in the sum of the replacement

cost of each one of its fixed, financial, intangible and other assets. The value of all the assets of

the Company must be subtracted from the value of all liabilities, existing and contingent, to arrive

at the value of the assets / business.

Intangible assets identified as contractual rights were valued taking into account their contractual

and/or legal useful life, which is the period during which the Company expects to use the asset.


4.4. Transactions separated from the acquisition

Since the beginning of the negotiation, the Company has incurred acquisition costs of

M$39.404.841 included in the separate statements of income as of December 31, 2018 for

M$28.771.964 and M$10.632.877 for the year 2017, in accordance with the following detail:

Note 5. Financial risk management

The Company is exposed to the following risks related to the use of financial instruments:

12/31/18 12/31/17 Total

M$ M$ M$

Professional fees 9,420,913 5,410,160 14,831,073

Technology 2,397,421 2,077,460 4,474,881

Personnel expenses 2,450,852 3,031,367 5,482,219

Other 14,502,778 113,890 14,616,668

Totals 28,771,964 10,632,877 39,404,841

Description




44

- Market risk.

- Credit risk.

- Liquidity risk.

The information with respect to the Company's exposure to each one of the risks mentioned, the

objectives, the policies and procedures to measure and manage the risk, and the management of the

capital, is presented in this note.

Risk management framework

The Company's Board of Directors, supervises the Company's policies. These internal policies seek to

identify, analyze and monitor the controls to mitigate financial, operating and compliance risks. The

Company ensures compliance through its rules, management procedures and corporate governance

policies.

5.1. Market risk

Risk management considers an individual analysis of each identified exposure situation; such analysis

determines if hedge financial instruments are contracted or not, if there are natural hedge mechanisms,

or if, the associated risk is simply assumed because it is not considered critical for the business and the

operation.

Note 5. Financial risk management, continuation

5.1. Market risk, continuation

a) Exchange rate risk

As of December 31, 2018, the average of the transactions in foreign currency of commercial

creditors and other accounts payable (MUSD10.718), exceeded by 24% the operations of

commercial debtors and other accounts receivable (MUSD8.182), that is, these transactions are

hedged in 76%, which allows the Company to mitigate in large part the exposure to exchange rate

risk since the collection in foreign currency is used in 100% for the payment to suppliers and/or

third parties that have billing in dollars and require payment in this currency. The need for foreign

currency is not the same for all months; in cases of surplus, reserves are made for future payments

and/or sales of the currency are made to the extent that the exchange rate is favorable, otherwise

the management buys the best market conditions of the currencies for the fulfillment of the

operations in foreign currency.

As a result of the purchase of ExxonMobil's investments in Colombia, Peru and Ecuador,

derivative financial instruments were contracted and designated as cash flow hedges for the

projected transaction (see note 4).

The financial indebtedness is taken in local currency to not incur in currency exposure.




45

The Company's operation is made in Colombian pesos, except for the invoicing to Aviation and

Maritime clients that is made in USD, with a monthly average of USD$8.500.000, of which

resources are used to cover payments to foreign suppliers in the same currency. Based on the

foregoing, no significant currency risks is generated.

b) Interest rate risk

The Company's debt as of December 31, 2018 is M$2.495.010.440 of which 16% is at a fixed rate

and 84% at a variable rate.

Treasury credits, both short and long term, obtained with financial institutions are taken with the

option of prepayment without penalty, which allows the restructuring of the debt at any time if

market conditions change. The Company does not have interest type hedges.

Cash surpluses are maintained mainly in savings accounts and/or in collective demand portfolios;

the rate of return received corresponds to that of the market.

On June 7, a new bond issue was made in the Colombian stock market, with the purpose of

replacing debt; the issuance was made for a total of M$1.100.000.000 with quarterly interest

payment indexed to the CPI, below, is a detailed explanation of the issuance:



b) Interest rate risk, continuation

The debt acquired through bond issuances, including the most recent one, corresponds to 77% of the

debt. 88% of this debt pays interest at a rate indexed to CPI, which increases or decreases its cost.

Short-term loans for the period ended December 31, 2018 were negotiated with a prepayment option

without penalty, which allows restructuring of the debt at any time if market conditions change. The

Company does not have interest type hedges.

At the end of the reporting period, the interest rate situation of the Company's interest-bearing

financial instruments is as follows:

Series Amount Maturity Rate

Series C Subseries 5 Years 281,448,000,000 6/7/23 CPI + 2,88% E.A.




Total 1,100,000,000,000




46

Analysis of fair value sensitivity for fixed rate instruments

Financial liabilities at a fixed rate are not recorded at fair value through profit or loss, therefore, the

Company is not exposed to a variation in the interest rate at the end of the reporting period for these

instruments.

Cash flow sensitivity analysis for variable rate instruments

The debt at variable rate of the Company consists of bond issuance, syndicated corporate loan and

short-term treasury credit corresponding to 90%, 6% and 4%, respectively, of the total of the debt at

variable rate. The debt for the issuance of variable rate bonds is indexed to a 12-month CPI; and as

of December 31, 2018 it amounts to M$1.840.816.243. A variation of 50 basis points in the CPI at

the end of the reporting period is considered reasonably possible according to the performance of the

index so far this year.




Cash flow sensitivity analysis for variable rate instruments, continuation

The following is the impact related to the sensitivity analysis of the Bonds:

2018

M$

Fixed rate instruments:

Financial liabilities (395,403,469)

Total (395,403,469)

Variable rate instruments:

Financial assets 33,056,742

Financial liabilities (2,071,589,250)

Total (2,038,532,508)

Increase 50 pb Decrease 50 pb

M$ M$



Financial liabilities (2,235,587) 2,336,798

Total (2,235,587) 2,336,798

Impact in results before taxes-equity




47

The debt for syndicated corporate loans and the treasury loan obtained in Colombia is referenced to

the semester past due IBR; as of December 31, 2018 this amounts to M$205.037.136. A variation of

10 base points in this indicator at the end of the reporting period is considered reasonably possible.

The following is the impact related to the sensitivity analysis of the Syndicated Corporate Loan and

Treasury Loans:

Interest on the debt for Leasing is affected by the behavior of the DTF, as of December 31, 2018 this

amounts to M$25.735.872 and the weighted average leasing rate is 0,8231%. Taking into account

that the variation observed in the DTF (periodic expired) of the last quarter of the year was -0.008%,

the following would be the impact related to the sensitivity analysis for financial leasings.




Cash flow sensitivity analysis for variable rate instruments, continuation

5.2. Credit risk

Increase 10 pb Decrease 10 pb

M$ M$



Financial liabilities (51,119) 51,119

Total (51,119) 51,119

Impact in results before taxes-equity

Variation DTF+0,0008% Variation DTF -0,0008%

M$ M$



Financial liabilities 52,764 52,687

Total 52,764 52,687

Impact in results - Equity




48

Credit risk is the risk of financial loss that the Company faces if a customer or counterparty in a

financial instrument does not comply with its contractual obligations, and originates mainly from

commercial debtors, other accounts receivable, cash and cash equivalents. .

Working capital or revolving credits are granted to customers, specifically for the purchase of

inventories of products marketed by the Company, which according to the risk profile and the business

segment require it.

All credit granted must comply with the information requirements established according to the type of

client and the guarantee presented. The documentation presented must guarantee that the Company has

all the necessary information for the knowledge of its clients, its general identification, commercial and

fiscal identification; likewise, it guarantees a general knowledge of the client's financial situation.

Exposure to credit risk


5.2. Credit risk, continuation

a) Commercial debtors and other accounts receivable

The Company's exposure to credit risk is affected mainly by the individual characteristics of each

client.

The Company's risk policy establishes a financial analysis of each new customer on an individual

basis, based on external ratings (when available), prior to hire and beginning the business

relationship. Quotas and credit limits are established for each client, which are approved according

to levels of authorization established by the Board of Directors. These quotas are permanently

reviewed and adjusted according to the client's solvency and business need.

All active customers in the risk center are reviewed every six months to monitor if their financial

situation has deteriorated. The report obtained from this review allows determining the need to

obtain an additional guarantee, define the cancellation of the credit or change to the modality of sale

with prepayment; in case of high risk, it can be decided on the cancellation of the business

relationship.

2018

M$

Commercial debtors and other accounts receivable 516,341,174

Cash and cash equivalents 224,085,825

Total 740,426,999




49

The Company monitors the economic and political environment in the countries where it operates in

order to be timely in making decisions against loans granted to customers from different sectors that

may be affected by changes or decisions.

With more than 63% of the Company's clients, transactions have been carried out for more than 4

years, and no impairment losses have been recognized against them. When monitoring the credit risk

of customers, they are grouped according to their credit characteristics.

Commercial debtors and other accounts receivable that are considered to have a late payment risk

are monitored weekly through portfolio reports for each business and per customer. These reports

allow to determine the blocking of customers, modification of credit conditions, and/or the

requirement of guarantees as the case may be.

The Company has established the requirement of a guarantee, which supports accounts receivable in

the event of default. This guarantee is obtained by some clients and sectors that commercially allow

it. Among the guarantees accepted by the Company, there are mortgages with an allowable 75% of

the commercial appraisal, payment compliance policies, CDT's endorsed, bank guarantees.

Additionally, the Company has a credit insurance contract.

As of December 31, 2018, approximately 40% of the portfolio was backed by collateral, and the rest

is analyzed taking into account the historical portfolio compliance, financial strength or potential

alliance that the client may represent for the Company (Restrictive lists, central risk score,

evaluation of credit conditions, among others) subject to approval levels stipulated in the portfolio

policy; which leads to continuous monitoring of the maturities of these clients, avoiding the

deterioration of their portfolio.


5.2. Credit risk, continuation

a) Commercial debtors and other accounts receivable, continuation

The entry of the Mobil Lubricants operation brought with it 314 clients of which 58% already had a

commercial relationship with the Company. For all customers of this new operation, the conditions

of quota and term in force from the beginning of the commercial relationship of the client were

maintained. In the event that any of these clients requests an increase in the quota or term, it will be

governed by the Company's current credit analysis policies and procedures.

b) Cash and cash equivalents

The Company maintained cash and cash equivalents of M$195.082.885 as of December 31, 2018,

which represents its maximum exposure to credit risk for these assets.

Cash and cash equivalents are held with banks and financial institutions, which are rated according

to the following detail:




50

c) Guarantees

The Company's policy is to evaluate and approve the delivery of corporate guarantee to its

subsidiaries if necessary and required by financial entities.

The Company has issued corporate guarantees to its subsidiaries for the granting of credit days as

follows:

• Petrolera Nacional S.A. for MUSD33.000 in favor of Chevron.

• Lutexsa Industrial Comercial Cia Ltda. for MUSD6.000 in favor of Banco Guayaquil so

that the latter in turn issues a bank guarantee in favor of Petroecuador.

• Terpel Comercial Ecuador Cia. Ltda. for MUSD7.000 in favor of Petroecuador and

Ministry of the Environment.

• Corporate guarantee to its subsidiary Terpel Energía S.A.S. E.S.P. within the granting of a

guarantee for MUSD45.000 in favor of Primax, the final buyer of the company

Distribuidora Andina de Colombia (DAC).


5.3. Liquidity risk

Liquidity risk is the risk that the Company has difficulties in complying with its obligations associated

with its financial liabilities that are settled through the delivery of cash or other financial assets. The

Company monitors its risk daily through the position and forecast of treasury from where the

obligations and cash surpluses are obtained to determine the source and destination of the resources.

The objective of the Company is to maintain a balance between the continuity of financing and

flexibility through the use of bank overdrafts, bank loans and/or leasing contracts, among others.

The Company seeks to maintain the level of its cash and cash equivalents and other investments on

demand, in an amount that allows it to meet cash needs for three days, which have been calculated

according to the daily average of the month in MM$62.000.

Country Bank Rating Rating agency

Banco Agrario S.A. AAA BRC STANDARD & POOR`S

Banco de Bogotá S.A. AAA BRC STANDARD & POOR`S

Bancolombia S.A. AAA RAC Fitch Ratings

BBVA S.A. AAA RAC Fitch Ratings

Corredores Davivienda S.A. AAA RAC Fitch Ratings

Davivienda S.A. AAA RAC Fitch Ratings

JP Morgan mxAAA BRC STANDARD & POOR`S

Colombia




51

The profile of the current debt allows maintaining a cash position to service the debt, according to their

maturities.

As of December 31, 2018, the Company has approved lines of credit of MM$1.739.404 for use in

overdrafts, treasury credits, short and long-term operations, leasing and guarantees, of which

MM$370.546 has been used and has MM$1.368.858 available. Financing rates are agreed upon when

acquiring the obligation, according to market conditions.

From the previous quota, an amount of MM$220.000, has been allocated for overdraft lines, of which

100% are available to date.




52


5.3. Liquidity risk, continuation

The following are the remaining contractual maturities of the financial liabilities at the end of the reporting period, including the estimated

interest payments:

a) The interest projection of the bonds is calculated with the last CPI (Consumer Price Index) at 12 months corresponding to 2018; this

estimate varies as the CPI fluctuates, except for the interests of series A bonds that are at a fixed rate. b) On the other hand, the projection of the interests of the syndicated corporate loan and the treasury credit is based on the last known IBR

(Banking Reference Indicator) for 6 months, this estimate varies as the IBR fluctuated, except for interest of the credit acquired with

Scotiabank-Colpatria and Banco de Bogotá that are at a fixed rate.

c) The flows disclosed in the table above represent the undiscounted contractual cash flows related to financial derivative liabilities held for

risk management purposes and that generally do not close before the contractual maturity. d) The interest payments on loans and variable rate bonds included in the previous table reflect the market term interest rates at the end of the

period and these amounts may change if the interest rates change.

Carrying value Total 1 month or less 1 - 3 months 3 - 12 months 1 - 5 yearsMore than 5

years

Bonds 2,092,614,496 3,531,422,284 - 44,737,014 102,099,902 1,126,479,641 2,258,105,727

Liabilities from financial leasing 38,213,320 76,793,430 816,762 1,633,519 7,530,844 35,381,085 31,431,220

Bank loans without guarantee 364,182,624 398,593,706 87,401,553 102,216,255 208,975,898 - -

Commercial accounts payable 615,618,754 615,618,754 558,093,987 17,862,566 23,164,524 16,497,677 -

3,110,629,194 4,622,428,174 646,312,302 166,449,354 341,771,168 1,178,358,403 2,289,536,947




53

Note 6. Accounting forecasts and judgments

The preparation of these separate financial statements in accordance with the International Financial

Accounting Standards accepted in Colombia requires that the management make judgments, estimates

and assumptions that affect the application of the accounting policies and the amounts of the reported

assets and liabilities. Actual results may vary from these estimates.

The relevant estimates and assumptions are frequently reviewed. The revisions of the accounting

estimates are recognized prospectively.

Information about the uncertainty in the critical estimates and judgments in the application of

accounting policies that have the most important effect over the amount recognized in the separate

financial statements is described in the following notes:

Note 3(g) Impairment: Uncertainty in estimates in the assumptions of the calculation of the impairment

for the cash generating units.

Note 4 Acquisition of investments and business combinations: Uncertainty in estimates in the fair value

of acquired assets and liabilities.

Note 17 Intangible assets different from capital gains. (Flagging rights) Critical judgment in the

definition of items and useful lives that are reviewed in each period.

Note 19 Property, plant and equipment: Critical judgment in the useful lives that are reviewed in each

period.

Note 7. Cash and cash equivalents

a) The Company's cash and cash equivalents are as follows:

12/31/18 12/31/17

M$ M$

Cash in hand 29,002,940 20,365,662

Balances in banks 162,026,143 104,324,935

Short-term deposits 33,056,742 37,738,114

Total 224,085,825 162,428,711




54

Note 7. Cash and cash equivalents, continuation

b) Reconciliation of liabilities that arise from the Company's financial obligations:

Balance as of

January 1, 2018 Payment of loans

Amounts

from

loans and bonds

Interests

accrued Transaction costs

Balance as of

December 31,

2018

Bonds 1,106,222,499 (217,735,619) 1,100,000,000 105,810,292 (1,682,676) 2,092,614,496

Bank obligations loans 20,633,970 (2,091,123,410) 2,373,857,430 60,814,634 - 364,182,624

Liabilities for leases 44,030,426 (10,124,505) - 4,307,399 - 38,213,320

Total liabilities for financing activities 1,170,886,895 (2,318,983,534) 3,473,857,430 170,932,325 (1,682,676) 2,495,010,440

Changes different to cashCash flows

-

Balance as of

January 1, 2018 Payment of loans

Amounts

from

loans Interests accrued

Transaction

costs

Hedge

instrument

Balance as of

December 31,

2017

Bonds 1,107,909,053 (81,972,927) - 80,021,507 264,866 - 1,106,222,499

Liabilities for leases - (141,350,573) 156,723,921 5,260,622 - 20,633,970

Liabilities for leases 48,984,397 (4,953,971) - - - - 44,030,426

Total liabilities for financing activities 1,156,893,450 (228,277,471) 156,723,921 85,282,129 264,866 29,839,865 1,200,726,760

Changes different to cashCash flows




55

Note 8. Financial instruments

a) Classification of financial Instruments by nature and by category

The details of the financial instruments of an asset and liability, classified by nature and category, are as

follows:

(*) Of the total of the commercial accounts payable and other accounts payable, M$44.261.644 as of

December 31, 2018 and M$49.189.539 as of December 31, 2017 are excluded, corresponding to advance

payments and advances from third-parties.

Note 9. Financial assets at fair value with changes in results

Financial assets at fair value with changes in non-current results include:

Financial assets measured at a fair value with changes in the results are classified in the Level 2 of

hierarchy; this corresponds to investments in non-controlled Companies that are not registered in the

stock exchange and that have not any quoted market price available as of December 31, 2018 and 2017.

The Company uses as observable data the intrinsic value of shares at the end of each year. As of

December 31, 2018, an adjustment was made at fair value to the shares of the companies. To date, no

provisions have been identified for impairment losses on these financial assets.

Entry for separate statement of Fair value Amortized cost 12/31/18 12/31/17

financial position Total Total Total Total

M$ M$ M$ M$

Financial assets at reasonable value with changes in results 2,743,968 - 2,743,968 1,228,087

Commercial debtors and other accounts receivable - 516,341,174 516,341,174 404,358,526

Accounts receivable from related entities - 41,808,325 41,808,325 43,933,710

Cash and cash equivalents - 224,085,825 224,085,825 162,428,711

Total 2,743,968 782,235,324 784,979,292 611,949,034

Entry for separate statement of Amortized cost 12/31/18 12/31/17

financial position Total Total Total

M$ M$ M$

Commercial accounts payable and other accounts payable (*) 615,618,754 615,618,754 523,322,621

Accounts receivable from related entities 21,674,750 21,674,750 16,076,589

Other financial liabilities 2,495,010,440 2,495,010,440 1,200,726,760

Total 3,132,303,944 3,132,303,944 1,740,125,970

12/31/18 12/31/17

Equity instruments (stocks) M$ M$

Initial balance 1,228,087 1,228,087

Dividends decreed in shares 36,438 -

Adjustment to fair value 1,479,443 -

End balance 2,743,968 1,228,087




56

Note 10. Other non-financial assets

(1) Includes accounts receivable to Ecopetrol S.A. for the special regulation, related to the differences

in prices and tax exemptions.

(2) Corresponds to the account receivable from the impact in the tax reform related to the sales tax.

Note 11. Commercial debtors and other accounts receivable

12/31/18 12/31/17

M$ M$

Current:

Expenses paid in advance 636,196 574,560

Leases 702,100 302,800

Advance payments to suppliers 28,336,763 32,945,643

Other assets to recover (1) 34,082,944 38,991,619

Totals 63,758,003 72,814,622

Non-current:

Leases 799,009 693,733

Other assets to recover (2) 31,333,100 30,639,367

Totals 32,132,109 31,333,100

12/31/18 12/31/17

M$ M$

Commercial debtors 504,136,187 404,962,975

Minus: Provision for losses from

commercial debtor impairment (9,848,872) (8,057,669)

Commercial debtors, net 494,287,315 396,905,306

Other accounts receivable, net 22,053,859 7,453,220

Totals 516,341,174 404,358,526

Minus: Non-current part (9,723,334) (10,472,593) Commercial debtors and other accounts receivable

accounts receivable 506,617,840 393,885,933




57

Note 11. Commercial debtors and other accounts receivable, continuation

Commercial debtors represent enforceable rights that originate within the normal course of business and

the other accounts receivable originate from sales, services and loans outside the ordinary course of

business.

The adjustment of the provision for impairment of the value of the accounts receivable has been

included as "expenses for non-collectible provisions" in the separate income statement, within the

administration expenses item.

The amortized cost of these financial instruments does not differ significantly from its fair value, for the

long-term financial instruments.

(a) Movements in the debtor impairment provision

Note 12. Balances with related entities

The Companies’ accounts receivable and payable to related entities are short-term, therefore, they are

recognized at their nominal value without having a financial component effect and contractual flows are

realized for a single amount, i.e. they are not paid in installments, but for full amount.

As of the date of these separate financial statements, there are no guarantees provided that are related to the

balances between related companies, nor provisions for doubtful debts.

12/31/18 12/31/17

M$ M$

Initial balance (8,057,669) (6,544,315)

582,110 311,008 639.860

Accounts receivable discharge for uncollectable 870,406 595,236 189.476

Entry for impairment (3,243,719) (2,419,598)

End balance (9,848,872) (8,057,669)

Debtor collection




58

Note 12. Balances with related entities, continuation

a) Accounts receivable from related entities

b) Current Accounts receivable to related entities

National Tax

RegistryCompany Country

Nature of the

relationshipControlling

31/12/2018

M$

31/12/2017

M$

99.520.000-7 Compañía de Petróleos de Chile COPEC S.A. Chile Parent Company Empresas Copec S.A. 21,719 49,778

1019225108 Petrolera Nacional S.A. Panamá Subsidiary Organización Terpel S.A. 572,649 898,526

130780331 Terpel República Dominicana S.R.L. Dominican Republic Subsidiary Organización Terpel S.A. 8,890,119 6,699,842

900491889 Masser S.A.S. Colombia Subsidiary Organización Terpel S.A. 26,387,653 32,342,910

9004330329 Terpel Energia S.A.S. E.S.P. Colombia Subsidiary Organización Terpel S.A. 14,294 8,851

20521921618 PGN Norte S.A.C. Perú Joint-venture - - 94,816

20521921880 PGN Sur S.A.C. Perú Joint-venture - - 172,036

20259880603 Terpel Comercial del Perú S.R.L. Perú Subsidiary Organización Terpel S.A. 2,247,046 -

20511995028 Terpel Perú S.A.C. (antes Gazel Perú S.A.C:.) Peru Subsidiary Organización Terpel S.A. 73,693 64,338

76004261-7 Organización Terpel Chile S.A. Chile Subsidiary Organización Terpel S.A. - 336,401

901045599-1 Puertos del Caribe Sociedad Portuaria S.A. Colombia Subsidiary Organización Terpel S.A. 30,505 -

990962170001 Lutexa Industrial Comercial Cia ltda. Ecuador Subsidiary Organización Terpel S.A. 3,570,647 3,266,212

Totals 41,808,325 43,933,710

National Tax

RegistryCompany Country

Nature of

the

relationship

Controlling31/12/2018

M$

31/12/2017

M$

900491889 Masser S.A.S. Colombia Subsidiary Organización Terpel S.A. 1,550,858 633,229

20511995028 Terpel Perú S.A.C. (antes Gazel Perú S.A.C:.) Peru Subsidiary Organización Terpel S.A. 38,295 -

901045599-1 Puertos del Caribe Sociedad Portuaria S.A. Colombia Subsidiary Organización Terpel S.A. 167,775 -

99.520.000-7 Compañía de Petróleos de Chile COPEC S.A. Chile Parent CompanyEmpresas Copec S.A. 454,984 -

9004330329 Terpel Energia S.A.S. E.S.P. Colombia Subsidiary Organización Terpel S.A. 17,929,009 14,271,202

1944745 Organización Terpel Corporation British Virgin Islands Subsidiary Organización Terpel S.A. 123,579 -

901210452-5 Terpel Exportaciones CI. S.A.S. Colombia Subsidiary Organización Terpel S.A. 150,000 -

76004261-7 Organización Terpel Chile S.A. Chile Subsidiary Organización Terpel S.A. 1,260,250 1,157,192

990962170001 Lutexa Industrial Comercial Cia ltda. Ecuador Subsidiary Organización Terpel S.A. - 14,966

Totals 21,674,750 16,076,589




59

Note 12. Balances with related entities, continuation

c) Remunerations received by key management and directive personnel

d) Loans to directive personnel:

Note 13. Inventories

Inventories show a significant increase, mainly as indicated in Note 4 - Purchase of investments and

business combinations.

The cost of inventories is included in its totality in the cost of sales, which as of December 31, 2018

amounts to M$13.585.091.120 (M$11.367.569.392 as of December 31, 2017). As of December 31, 2018 a provision for obsolescence was recorded in M$2.084.285 (M$1.705.601 as

of December 31, 2017) and an adjustment for a realizable net value in M$4.585.110 (M$6.197.478 as

of December 31, 2017).

12/31/18 12/31/17

M$ M$

Remunerations and gratuities 5,406,200 4,420,144

Directoriate diets 709,283 548,845

Total 6,115,483 4,968,989

Por el ejercicio terminado en

12/31/18 12/31/17

M$ M$

Initial balance 442,716 530,096

Increase 220,000 -

Decreases (103,506) (87,380)

End balance 559,210 442,716

12/31/18 12/31/17

M$ M$

Goods 570,572,773 504,521,959

Raw materials 43,236,734 23,693,382

Supplies for the production 1,911,566 1,039,801

Ongoing work 4,177,859 2,490,667

Completed goods 39,204,976 9,064,605

Other inventories 7,540,335 6,676,812

Totals 666,644,243 547,487,226




60

Note 14. Assets and liabilities for taxes

The assets for taxes as of December 31, 2018 and 2017 are as follows:

(*) Corresponding mainly to private VAT tax offset excesses (credit balances).

Assets for taxes as of December 31, 2018 and 2017 are as follows:

Note 15. Non-current assets kept for sale

Corresponds to licenses of the Pegasus project sold to Distribuidora Andina de Combustibles S.A.

12/31/18 12/31/17

M$ M$

Other assets for taxes different than income tax

Industry and commerce tax 6 ,172,722 5 ,262,590

Other taxes to recover (*) 6 9,218,482 83,556,119

Totals 75,391,204 88,818,709

12/31/18 12/31/17

Income tax M$ M$

Advances for income tax 3 3,357,868 -

Income tax provision - 59,759,090

Total income tax 3 3,357,868 59,759,090

Other liabilities for taxes different than income tax

Fuel surcharge tax 100,584,985 97,499,659

Industry and commerce tax 1 4,738,780 11,357,984

Other taxes 1 9,532,671 11,801,898

Total other liabilities for taxes different to

income tax 134,856,436 120,659,541

Totals 101,498,568 180,418,631

12/31/18 12/31/17

M$ M$

Licenses - 1 ,394,387

Total - 1,394,387

- 1 ,394,387

Description




61

Note 16. Investments accounted for using the participation method

Below is the detailed information for the investments accounted for using the participation method, as well as the movements therein for the years

ending on December 31, 2018 and 2017:

(*) On October 10, 2017, the Organización Terpel S.A. sold the operation of NGV in Combustibles Ecológicos Mexicanos S.A de C.V., a

company whose main activity is the commercialization of compressed natural gas through service stations in Mexico. The sale agreement

was signed during the fourth quarter of 2017 and the buyer, Prana Gas S.A.P.I de C.V. took the control of said company. The sale price was

USD 8 million, generating a net loss of USD 877 thousand.

Country of origin

Functional

currency

Participation

percentage

Balances as of

01-01-2018

Participation in profit

(loss)

Declared

dividends

Conversion

difference

Other

movements

Balances as of

31-12-2018

% M$ M$ M$ M$ M$ M$

PGN Gasnorte S.A.C. Peru PEN$ 25.00 2,295,021 788,413 (557,595) 4,663 - 2,530,502

PGN Gasur S.A.C. Peru PEN$ 25.00 1,229,935 479,415 (677,971) 2,069 - 1,033,448

Organización Terpel Chile S.A. Chile USD$ 100.00 710,102 (144,703) - 48,188 - 613,587

Inversiones Organización Terpel Chile S.A. Chile USD$ 100.00 47,976,203 1,984,801 - 4,488,172 - 54,449,176

Terpel Comercial Ecuador Cia. Ltda. (before ExxonMobil

Ecuador) (see note 4)Ecuador USD$ 100.00 - 2,290,630 - 3,822,186 29,175,557 35,288,373

Organización Terpel Corporation (see 4) British Virgin Islands USD$ 100.00 - 5,009,864 - 172,861,954 720,249,735 898,121,553

Petrolera Nacional S.A. Panamá USD$ 100.00 269,599,057 2,440,136 - 23,791,570 9,121,906 304,952,669

Terpel Energía S.A.S. E.S.P. Colombia COP 100.00 14,912,531 4,618,882 (3,445,299) - - 16,086,114

Terpel República Dominicana S.R.L. Dominican Republic USD$ 100.00 32,088,546 11,686,385 (14,433,886) 1,750,171 - 31,091,216

Terpel Perú S.A.C. (antes Gazel Perú S.A.C:.) Perú PEN$ 100.00 42,546,945 (6,259,203) - (109,404) 1,177,219 37,355,557

Terpel Exportaciones CI. S.A.S. Colombia COP 100.00 - - - - 150,000 150,000

Puertos del Caribe Sociedad Portuaria S.A. (see note 4) Colombia COP 100.00 - 27,863 - - 193,973 221,836

Totals 411,358,340 22,922,483 (19,114,751) 206,659,569 760,068,390 1,381,894,031

Country of origin

Functional

currency

Participation

percentage

Balances as of

01-01-2017

Participation in profit

(loss)

Declared

dividends

Conversion

difference

Other

movements

Balances as of

31-12-2017

% M$ M$ M$ M$ M$ M$

PGN Gasnorte S.A.C. Peru PEN$ 25.00 1,976,827 741,721 (486,847) 63,320 - 2,295,021

PGN Gasur S.A.C. Peru PEN$ 25.00 1,267,354 449,736 (522,857) 35,702 - 1,229,935

Organización Terpel Chile S.A. Chile USD$ 100.00 832,011 (116,388) - (5,521) - 710,102

Inversiones Organización Terpel Chile S.A. Chile USD$ 100.00 46,096,483 2,115,743 - (236,023) - 47,976,203

Combustibles Ecológicos Mexicanos S.A. de C.V. (*) Mexico MXN$ 100.00 13,431,825 3,050,332 - - (16,482,157) -

Petrolera Nacional S.A. Panama USD$ 100.00 246,152,258 4,561,272 - (1,114,473) 20,000,000 269,599,057

Terpel Energía S.A.S. E.S.P. Colombia COP 100.00 9,467,151 5,445,380 - - - 14,912,531

Terpel República Dominicana S.R.L. Dominican Republic USD$ 100.00 38,198,948 15,475,033 (21,305,509) (279,926) - 32,088,546

Terpel Perú S.A.C. (antes Gazel Perú S.A.C:.) Peru PEN$ 100.00 45,356,673 (4,063,790) - 1,254,062 - 42,546,945

Totals 402,779,530 27,659,039 (22,315,213) (282,859) 3,517,843 411,358,340

I nvestment movements in subordinates and joint

ventures

Balance as of 31/12/2017

I nvestment movements in subordinates and joint

ventures

Balance as of 31/12/2018




62

Note 17. Intangible assets different from capital gains

a) Details and movement of the principal types of intangible assets

Of the total charge for amortization of the period ending on December 31, 2018 in M$141.691.340

(M$103.481.035 for the period ending in 2017), M$116.626.110 (M$80.738.934 in 2017) where

accounted for within the distribution cost; and M$25.058.450 (M$22.735.564 in 2017) in management

expenses and M$6.780 (M$6.537 in 2017) in the cost of sales.

As of December 31, 2018

M$ M$ M$ M$ M$ M$

Initial balance as of January 1, 2018 100,093,223 - 12,759,591 367,411,875 236,359 480,501,048

Additions 32,940,768 - 10,526,158 111,200,945 - 154,667,871

Business combination (Note 4) - 246,627,023 515,199 5,247,271 - 252,389,493

Discharge - - (18,314) (5,417,114) - (5,435,428)

Amortization (49,849,175) (6,165,676) (9,287,458) (76,270,851) (118,180) (141,691,340)

Other increases - - 5,136,464 (13,057,531) - (7,921,067)

Total changes (16,908,407) 240,461,347 6,872,049 21,702,720 (118,180) 252,009,529

End balance as of December 31, 2018 83,184,816 240,461,347 19,631,640 389,114,595 118,179 732,510,577


Computer

software,

NetFlagging rights

Otros activos

identifiable

identifiable, Net

M$ M$ M$ M$ M$

Initial balance as of January 1, 2017 117,001,631 5,007,330 307,711,468 354,539 4 30,074,968

Additions - 14,160,217 142,155,915 - 1 56,316,132

Discharge - - (270,132) - (270,132)

Amortization (16,908,408) (6,407,956) (80,046,491) (118,180) (103,481,035)

Other decreases - - (2,138,885) - ( 2,138,885)

Total changes (16,908,408) 7 ,752,261 5 9,700,407 ( 118,180) 5 0,426,080

End balance as of December 31, 2017 100,093,223 12,759,591 3 67,411,875 2 36,359 4 80,501,048

Movements in

identifiable

intangible assets

Brands and

relationships with

clients

Total assets

identifiable

intangible assets,

Net

Distribution

agreement

Movements in

identifiable

intangible assets

Brands,

relationships with

clients and other

rights

Computer

software,

NetFlagging rights

Other

asset

identifiable

identifiable, Net

Total assets

identifiable

intangible assets,

Net




63

Note 18. Capital gains

The total carrying amount of the capital gains in the acquisition of Compañía Gazel S.A.S. For the years

ending on December 31, 2018 and 2017, are as follows:

a) UGE Natural Gas for Vehicles (Gazel)

Due to the Company's policy, the impairment test was carried out every September of each year, and

this year, given the context of the natural gas market, the increase in costs and business prospects, an

additional test was carried out with cut to December 31, 2018.

As of December 31, 2018 and 2017, for the evidence of the capital gain impairment that was generated

because of the acquisition of Gazel S.A.S., the fair value was determined, using the free cash flow

present value methodology (FCL), for which the free cash flow related to the NGV business was

calculated for a 5-year period and a final value to reflect the perpetuity of the business. The flows were

discounted at the average cost of capital (WACC). The impairment test is made at the balance of the

assets associated with the NGV business as of September 2018; i.e., capital gain MM$306.032, brand

MM$32.460, intangibles MM$50.725, property, plant and equipment carrying value MM$188.087.

The hypothesis on which the financial budgets are based have included growths in NGV volumes of -

0,7% on average, a gross margin of approximately 32,5% and an average EBITDA margin of 14,7%.

The average forecasts for 5 years for the COP/USD exchange rate and WTI, available at the time of the

assessment, correspond to COP 3.103,5/USD and USD 66,4/barrel, respectively, being that these two

external variables are not managed by the Company, with important incidence in the expected

projections.

For these projections, the increases in the cost that the unit has been having in the last quarter of 2018

were taken into account, this being explained by increases in transportation costs and a higher cost due

to the devaluation of the exchange rate, factors that have eroded the gross margin.

Likewise, WTI projections were updated, on which the estimation of gas prices depends. Which, reflect

lower expectations in price, according to the average of the most recent EIA, World Bank and

Bloomberg assumptions.

On the other hand, the forecast of the exchange rate was updated, reflecting the greater expectation of

devaluation. For this, the most recent forecasts of Bancolombia for 2019 where taken and thereafter, it

was projected with parity devaluation. To project the parity devaluation, the projected inflations of

Colombia and the United States were used, whose source was the consensus of analysts for 2019 and

henceforth The Economist for Colombia and for the United States Annual Energy Outlook.

12/31/18 12/31/17

M$ M$

Natural Gas for Vehicles (Gazel) 306,031,992 306,031,992

Impairment Gazel capital gains (77,099,521) -

228,932,471 306,031,992 Total




64

Note 18. Capital gains, continuation

a) UGE Natural Gas for Vehicles (Gazel), continuation

Additionally, sensitivities were made in the projected price of gas, which is the variable with the

greatest impact, given the behavior observed in the last year of prices in the market, which reflect that

agents have not been able to transfer the increases in cost to the consumer to try to encourage

consumption, given the crisis that the sector is going through in recent years. In this way, the projected

price expectations are in line with this situation and the projections of gas prices, which is the substitute

good.

Taking this context into account, the administration's projections reflect a slower recovery scenario that

will not return in the medium term to the levels observed prior to the crisis.

For the impairment test performed as of December 31, 2017, the assumptions used were at the level of

growth in NGV volumes of -1.2% on average, gross margin of 38% and average EBITDA margin of

25%. dIn no case and, considering an analysis of sensitivity based on the values of the key hypotheses,

there would be deterioration of capital gains for this year.

The administration determined the gross margins budgeted based on market development expectations

and forecasts of the cost of gas.

In relation to the NGV volume, the assumptions on which the financial budgets for growth are based are

0% on average, assuming a conservative scenario explained by the market context. However, in the

long term it is considered a marginal growth of 0,5% that is collected via final value.

Due to the foregoing, the financial evaluation as of December 31, 2018 determines that there is an

impairment in the assets of the NGV business, equivalent to M$77.099.521 included in the statement of

income under other expenses by function. This impairment affected the balance of goodwill, leaving a

balance of M$228.932.471 as of December 31, 2018.

12/31/18 12/31/17

Discount rate 8.59% 9.00%

Final value growth rate 0.50% 0.50%




65

Note 19. Property, plant and equipment

a) The detail and movements of the different categories of properties, plant and equipment are shown below:

Constructions Plant and

Information

technology Fixed facilities and Motor Improvements in Total Property,As of December 31, 2018 Constructions and buildings, equipment, equipment, accessories, vehicles, leased goods, plants and equipment,

ongoing Lands net net net net net net net

M$ M$ M$ M$ M$ M$ M$ M$ M$

Initial balance as of January 1, 2018 143,133,618 345,232,862 398,142,089 364,407,670 1 2,114,185 14,454,667 28,333,679 - 1 ,305,818,770

Movements

Additions 127,798,809 - - 2,086,698 2,119 - 52,880 - 1 29,940,506

Business combination (Note 4) - 59,819,433 54,536,418 34,030,284 1,007,653 1,747,722 1,247,062 - 1 52,388,572

Transfers to (from) ongoing constructions (134,854,659) 24,402,967 29,512,569 49,069,673 8,515,102 2,544,122 9,183,897 2,721,159 ( 8,905,170)

Withdrawals - (3,669,735) (6,271,749) (7,852,302) (83,819) (160,712) (549,028) - ( 18,587,345)

Depreciation expenses - - (15,072,473) (28,043,824) (5,326,230) (3,816,899) (6,863,142) (277,549) ( 59,400,117)

Other increases (reductions) (3,080,495) (110,865) 1,265,812 1,312,464 305,368 248,661 (1,438,912) 16,137,778 1 4,639,811

Total movements (10,136,345) 80,441,800 63,970,577 50,602,993 4 ,420,193 562,894 1 ,632,757 18,581,388 2 10,076,257

Final balance as of December 31, 2018 132,997,273 425,674,662 462,112,666 415,010,663 1 6,534,378 15,017,561 29,966,436 1 8,581,388 1 ,515,895,027

Constructions Plant and

Information

technology Fixed facilities and Motor Total Property,As of December 31, 2017 Constructions and buildings, equipment, equipment, accessories, vehicles plants and

ongoing Lands net net net net net net

M$ M$ M$ M$ M$ M$ M$ M$

Initial adjusted balance as of January 1, 2017 279,058,610 339,613,470 310,050,337 322,464,409 7 ,477,124 12,960,213 13,955,356 1,285,579,519

Movements

Additions 8 3,001,198 - - 1 ,979,684 - 5 ,054 - 84,985,936

Transfers to (from) ongoing constructions (218,926,190) 6,295,554 100,899,577 67,954,697 8,681,959 4,210,883 20,489,337 (10,394,183)

Withdrawals - (676,162) ( 200,322) (258,412) ( 4,315) - (248,514) ( 1,387,725)

Depreciation expenses - - (12,607,503) (27,732,708) ( 4,040,583) (2,721,483) (5,862,500) (52,964,777)

Total movements (135,924,992) 5 ,619,392 88,091,752 41,943,261 4 ,637,061 1 ,494,454 14,378,323 2 0,239,251

Final balance as of December 31, 2017 143,133,618 345,232,862 398,142,089 364,407,670 1 2,114,185 14,454,667 28,333,679 1,305,818,770




66

Note 19. Property, plant and equipment, continuation

Of the total charge for amortization of the period ending on December 31, 2018 in M$59.400.117

(M$52.964.777 for the period ending in 2017), M$51.820.315 (M$47.602.547 in 2017) where accounted

for within the distribution cost; and M$5.596.181 (M$4.665.282 in 2017) in management expenses and

M$1.983.621 (M$696.948 in 2017) in the cost of sales.

b) Property, plant and equipment in financial leasing, net

Note 20. Investment properties

The movements of investment properties as of December 31, 2018 and 2017 is the following:

Investment properties correspond to lands, tracts of land and constructions, which are kept for

undetermined future use; they are not being used in the operation, and there is no intention to sell them

in the short-term. As of December 31, 2018 the fair value of the investment properties is M$8.044.115

(M$7.884.274 as of December 31, 2017)

As of the date of the presentation of these separate financial statements, the Company had not identified

any evidence of impairment that could affect the value of the investment properties.

12/31/18 12/31/17

M$ M$

Property, plant and equipment in financial leasing, net

Property under financial lease 19,160,639 19,271,504

Buildings under financial lease 23,956,594 24,596,164

Machinery and equipment 13,376,112 14,042,194

Fixed installations and fixtures 1,697,878 2,452,491

58,191,223 60,362,353

12/31/18 12/31/17

M$ M$

Initial balance 5,967,920 6,000,363

Additions 27,251 3,432

Depreciation (36,442) (35,875)

Total changes in investment properties (9,191) (32,443)

End balance 5,958,729 5,967,920




67

Note 21. Operating lease

At the end of the period being reported, the minimum lease future payments that arise from non-

cancellable operating leases are as follows:

The Company has taken under lease the storage tanks of the Puente Aranda plant (Distribuidora Andina

de Combustibles S.A.), with the purpose of receiving the products in storage. The term of the agreement

is 9 years and the minimum payments increase each year according to the consumer price index (CPI).

The Company has leased a large number of comprehensive printers for all of its facilities, with a term

of 3 years with an option to extend the lease after such date. The payments for leases increase each

year in accordance with the changes in the consumer price index (CPI).

The expenses for leases and usufructs related to the operating leases amounted to M$27.619.350 as of

December 31, 2018 (M$45.324.075 as of December 31, 2017) included in the separate financial

statements in the distribution costs provision.

Note 22. Differed taxes

a) Assets and liabilities for deferred taxes

12/31/18 12/31/17

M$ M$

Less than one year 8,876,724 10,951,685 Between one and three years 1,438,900 3,007,301

10,315,624 13,958,986




68

12/31/18 12/31/17

M$ M$

Assets for deferred taxes:

Uncollectable accounts provision 1 ,244,392 1 ,039,023

Properties, plant and equipment 3 0,662,068 34,107,359

Hedge instrument - 11,040,748

Provisions 2 ,200,899 1 ,528,576

Total assets for deferred taxes 3 4,107,359 47,715,706

Liability for deferred taxes:

Properties, plant and equipment 109,959,399 130,479,063

Intangible assets 9 6,098,738 133,583,518

PPA

identifiable 7 9,352,245 -

Properties, plant and equipment 1 ,925,338 -

Indemnity agreement (Cerrejón) ( 5,923,374) -

Total liabilities for deferred taxes 281,412,346 264,062,581

Differed tax, net 247,304,987 216,346,875




69

Note 22. Deferred taxes, continuation

b) Movement in deferred tax

Item

Balance as of

January 1,

2017

Recognized in

results

Recognized in

other

comprehensive

result

Balance as of

December 31,

2017

Recognized in

results

Recognized in

other

comprehensive

result

Business

combination

Balance as of

December 31,

2018

Provisions 12,543,458 (9,975,859) - 2,567,599 877,692 - - 3,445,291

Hedge instruments - - 11,040,748 11,040,748 - (11,040,748) - -

Properties, plant and equipment (90,019,836) (6,351,868) - (96,371,704) 17,074,373 - - (79,297,331)

Intangible assets (134,645,633) 1,062,115 - (133,583,518) 39,747,161 - (2,262,381) (96,098,738)

PPA - - - - - - (75,354,209) (75,354,209)

Totals (212,122,011) (15,265,612) 11,040,748 (216,346,875) 57,699,226 (11,040,748) (77,616,590) (247,304,987)




70

Note 23. Other current and non-current financial liabilities

As of the date of the close of the separate financial statements, this classification included obligations

with banks and financial institutions and obligations with the public through bonds issued in Colombian

pesos. Explained in detail below:

(1) Corresponds to the forward hedge instrument of currency exchange for the agreement with

Mobil Petroleum Overseas Company Limited and Exxon Mobil Ecuador Holding B.V. that

covers the exchange rate variations (COP/USD).

(2) For 2018, Organización Terpel S.A. obtained a syndicated loan for the acquisition of the

companies owned by Mobil Petroleum Overseas Company Ltd. and ExxonMobil Ecuador

Holding B.V. in the amount of MM$1.675.500 with Bancolombia S.A., Banco de Bogotá S.A.,

Banco Bilbao Vizcaya Argentaria Colombia S.A. and Banco Davivienda S.A. with an interest

rate of 2.50% + IBR and with a maturity date of September 2019, as of December 2018, capital

payments of M$1.560.463 have been made.

The following obligations are included in the syndicated loan contract:

Affirmative covenants:

• To provide the Financial statements to lenders within 90 calendar days after the yearly fiscal

close and within the 45 following calendar days at the close of June 30 of each year.

• To preserve, renew and maintain in full force the capacity and legal existence under the laws

of the jurisdiction of its incorporation and domicile.

• To pay at the maturity or before, all its liabilities including employment and tax obligation

whose breach could generate a material adverse effect.

• To comply with the purpose of the loan.

• To maintain a corporate local risk credit rating equal to the “AAA” level.

12/31/18 12/31/17

M$ M$

Current:

Loans with credit entities (2) 364,182,624 20,633,970

Bonds 10,872,232 122,788,482

Financial lease 6 ,301,961 5,666,038

Other financial liabilities (1) - 29,839,865

Total 381,356,817 178,928,355

Non-current:

Bonds 2,081,742,264 983,434,017

Financial lease 31,911,359 38,364,388

Totals 2,113,653,623 1,021,798,405

Total obligations with financial institutions 2,495,010,440 1,200,726,760




71

Note 23. Other current and non-current financial liabilities, continuation

Negative covenants:

• Execute any type of transaction with any Affiliate, except for transactions carried out

within the ordinary course of business.

• Contract or acquire any type of indebtedness for an amount greater than USD70.000.000

whose purpose is to finance new acquisitions.

a) Loans with credit entities and bonds

The following is the carrying value of the financial obligations:

(1) The fair value of the bonds as of December 31, 2018 was M$2.129.542.200,

(M$1.127.917.719 as of December 31, 2017) which is an estimate in accordance with the

information of the market provided by the entity Bancolombia S.A.

(2) The fair value of the loans with banks as of December 31, 2018 was M$352.277.739;

which is an estimate according to the quotation indicated by the financial entities,

maintaining the conditions of the credits at the date of these separate financial statements.

The following is a detail explanation of the ordinary bonds as of December 31 2018 and 2017:

31/12/2018 31/12/2017

M$ M$

Liabilities at amortized cost

Bonds (1) 2,092,614,496 1,106,222,499

Loans with banks (2) 364,182,624 20,633,970

Financial lease 38,213,320 44,030,426

Total 2,495,010,440 1,170,886,895

Liabilities at reasonable value

Other financial liabilities - 29,839,865

Total - 29,839,865

Type of bondAnnual effective

interest rate

31/12/2018

M$

31/12/2017

M$

Series 7 years fixed rate 5.65% 240,926,022 240,846,123

Series 5 years CPI E.A. CPI + 2.86% - 115,095,922

Series 10 years CPI E.A. CPI + 3.09% 247,043,320 246,990,822




Series 5 years CPI E.A. CPI + 2,88% 280,983,562 -




2,081,742,264 1,098,529,939

Nominal values




72


a) Loans with credit entities and bonds, continuation

Pursuant to Resolutions 0319 of February 19, 2013, 0009 of January 7, 2015 and 0479 of April

17, 2018, the Superintendency of Finance of Colombia authorized the registration of the

ordinary bonds issued by the Company in the National Securities and Issuers Registry (RNVE),

which are listed below:

The issuance did not have a discount premium and the issuance resources were 100% allocated

to replace liabilities with local banks.

YearAuthorized value

MM$

Issued value

MM$

2018 1,500,000 1,100,000

2015 700,000 400,000

2013 700,000 400,000

Total 2,900,000 1,900,000




73


b) Obligations with banks - nominal and accounting values - loans as of December 31 2018 and 2017.

Nominal values

Up to 90 days

M ore than 90 days

up to 1 year

M ore than 1 years

up to 3 years

M ore than 3

years up to 5

years

Total nominal amounts

2018

Total nominal

amounts 2017

830095213-0 Organización Terpel S.A. Colombia Bancolombia S.A. COP At maturity 6.81% 6.81% - 38,645,760 - - 38,645,760 -

830095213-0 Organización Terpel S.A. Colombia Banco de Bogotá S.A. COP At maturity 6.81% 6.81% - 9,339,393 - - 9,339,393 -

830095213-0 Organización Terpel S.A. Colombia BBVA S.A. COP At maturity 6.81% 6.81% - 9,339,393 - - 9,339,393 -

830095213-0 Organización Terpel S.A. Colombia Banco Davivienda S.A. COP At maturity 6.81% 6.81% - 9,339,393 - - 9,339,393 -

830095213-0 Organización Terpel S.A. Colombia Bancolombia S.A. COP At maturity 6.82% 6.82% - 28,034,186 - - 28,034,186 -

830095213-0 Organización Terpel S.A. Colombia Banco de Bogotá S.A. COP At maturity 6.82% 6.82% - 6,779,670 - - 6,779,670 -

830095213-0 Organización Terpel S.A. Colombia BBVA S.A. COP At maturity 6.82% 6.82% - 6,779,670 - - 6,779,670 -

830095213-0 Organización Terpel S.A. Colombia Banco Davivienda S.A. COP At maturity 6.82% 6.82% - 6,779,670 - - 6,779,670 -

830095213-0 Organización Terpel S.A. Colombia Banco Popular S.A. COP At maturity 5.84% 5.83% - 90,000,000 - - 90,000,000 -

830095213-0 Organización Terpel S.A. Colombia Banco de Bogotá S.A. COP At maturity 5.96% 5.96% 42,000,000 - - - 42,000,000 -

830095213-0 Organización Terpel S.A. Colombia Banco Colpatria S.A. COP At maturity 5.64% 5.64% 69,000,000 - - - 69,000,000 -

830095213-0 Organización Terpel S.A. Colombia Banco Colpatria S.A. COP At maturity 5.64% 5.64% 31,000,000 - - - 31,000,000 -

830095213-0 Organización Terpel S.A. Colombia BBVA S.A. COP At maturity 4.60% 4.60% - - - - - 20,000,000

142,000,000 205,037,135 - - 347,037,135 20,000,000

Accounting values

Up to 90 daysM ore than 90 days

up to 1 yearTotal current

M ore than 1

years up to 3

years

M ore than 3

years up to 5

years

Total non-current Total

830095213-0 Organización Terpel S.A. Colombia Bancolombia S.A. 3,573,198 38,645,762 42,218,960 - - - 42,218,960 - - -

830095213-0 Organización Terpel S.A. Colombia Banco de Bogotá S.A. 863,523 9,339,392 10,202,915 - - - 10,202,915 - - -

830095213-0 Organización Terpel S.A. Colombia BBVA S.A. 863,523 9,339,392 10,202,915 - - - 10,202,915 - - -

830095213-0 Organización Terpel S.A. Colombia Banco Davivienda S.A. 863,523 9,339,392 10,202,915 - - - 10,202,915 - - -

830095213-0 Organización Terpel S.A. Colombia Bancolombia S.A. 3,249,421 28,034,185 31,283,606 - - - 31,283,606 - - -

830095213-0 Organización Terpel S.A. Colombia Banco de Bogotá S.A. 785,372 6,779,671 7,565,043 - - - 7,565,043 - - -

830095213-0 Organización Terpel S.A. Colombia BBVA S.A. 785,372 6,779,671 7,565,043 - - - 7,565,043 - - -

830095213-0 Organización Terpel S.A. Colombia Banco Davivienda S.A. 785,372 6,779,671 7,565,043 - - - 7,565,043 - - -

830095213-0 Organización Terpel S.A. Colombia Banco Popular S.A. 3,982,386 90,000,000 93,982,386 - - - 93,982,386 - - -

830095213-0 Organización Terpel S.A. Colombia Banco de Bogotá S.A. 42,060,900 - 42,060,900 - - - 42,060,900 - - -

830095213-0 Organización Terpel S.A. Colombia Banco Colpatria S.A. 70,148,895 - 70,148,895 - - - 70,148,895 - - -

830095213-0 Organización Terpel S.A. Colombia Banco Colpatria S.A. 31,184,003 - 31,184,003 - - - 31,184,003 - - -

830095213-0 Organización Terpel S.A. Colombia BBVA S.A. - - - - - - - 20,633,970 - 20,633,970

159,145,488 205,037,136 364,182,624 - - - 364,182,624 20,633,970 - 20,633,970


RUT debtor entity Name of debtor

Country of

debtor Name of creditor

Currency or

adjustment unit

Type of

amortization Effective rate Nominal rate

Total


Non-current bank loans

Current Non-current TotalRUT debtor entity Name of debtorCountry of

debtorName of creditor

Current bank loans




74


c) Obligations with banks - financial leases

Nominal values

up to 90 days

More than 90

days up to 1

year

More than 1

years up to 3

years

More than 3

years up to 5

years

More than 5

years

Total nominal

amounts 2018

Total nominal

amounts 2017

830095213-0 Organización Terpel S.A. Colombia Bancolombia S.A. Colombia COP Monthly 0.850% 0.847% 1,489,351 4,692,499 9,777,011 9,777,011 - 25,735,872 31,413,454

830095213-0 Organización Terpel S.A. Colombia Vinder SAS Colombia COP Monthly 1.000% 0.995% 37,078 8 3,033 397,886 397,887 11,561,564 12,477,448 12,616,972

1,526,429 4,775,532 10,174,897 10,174,898 11,561,564 38,213,320 44,030,426

- -

Accounting values

830095213-0 Organización Terpel S.A. Colombia Bancolombia S.A. Colombia 1,489,351 4,692,499 6,181,850 9,777,011 9,777,011 - 19,554,022 25,735,872 5,526,518 25,886,936 31,413,454

830095213-0 Organización Terpel S.A. Colombia Vinder SAS Colombia 37,078 83,033 120,111 397,887 397,886 11,561,564 12,357,337 12,477,448 139,520 12,477,452 12,616,972

1,526,429 4,775,532 6,301,961 10,174,898 10,174,897 11,561,564 31,911,359 38,213,320 5,666,038 38,364,388 44,030,426

Currency or

adjustment

unit

Frequency of

amortization

Effective

rateNominal rate

RUT debtor

Name of debtorCountry of


Country of

creditor

Accounting values 2018 Accounting values 2017

Up to 90 days

More than 90

days up to 1

year

Total

currentNon-current Total

More than 1

years up to 3

years

More than 3

years up to 5

years

More than 5

years

Total non-

currentTotal Current

RUT debtor

Name of debtorCountry of


Country of

creditor




75


d) Obligations with banks - Bonds

Nominal values

Series

Date of

maturity

More than 90

days up to 1

year

More than 3

years up to 5

years

More than 5 yearsTotal nominal

amounts 2018

Total nominal

amounts 2017

830095213-0 Organización Terpel S.A. Colombia COG20CBBO009

Series A Subseries A7 - 7 Years

Fixed Rate E.A. 2/27/20 COP Quarterly 5.65% 5.53% - 240,926,021 - 240,926,021 240,846,123


Series C Subseries C5 - 5 Years CPI

Margin E.A. 2/27/18 COP Quarterly7.03% 6.85%

- - - - 115,095,922


Series C Subseries C10 - 10 Years

CPI Margin E.A. 2/27/23 COP Quarterly 6.32% 6.17% - - 247,043,322 247,043,322 246,990,822



CPI Margin E.A. 2/27/31 COP Quarterly 6.58% 6.43% - - 96,420,387 96,420,387 96,411,294


Series 2 7 years CPI E.A.

YEARS MARGIN OVER CPI E.A. 2/18/22 COP Quarterly 6.32% 6.17% - 150,729,488 - 150,729,488 150,675,520



YEARS MARGIN OVER CPI E.A. 2/18/30 COP Quarterly 6.15% 6.01% - - 248,539,638 248,539,638 248,510,258


SERIES A SUBSERIES A5 - 5

YEARS MARGIN OVER CPI E.A. 6/7/23 COP Quarterly 6.89% 6.72% - 280,983,562 - 280,983,562 -


SERIES C SUBSERIES C10 - 10

YEARS MARGIN OVER CPI E.A. 6/7/28 COP Quarterly 7.16% 6.98% - - 193,928,411 193,928,411 -


SERIES C SUBSERIES D15 - 15





- 672,639,071 1,409,103,193 2,081,742,264 1,098,529,939

Accounting values

Series

Date of

maturity


Series A Subseries A7 - 7 Years

Fixed Rate E.A. 2/27/20 1,169,404 1,169,404 240,926,021 - 240,926,021 242,095,425 1,195,334 240,846,123 242,041,457


Series C Subseries C5 - 5 Years CPI

Margin E.A. 2/27/18 - - - - - - 117,348,370 - 117,348,370



CPI Margin E.A. 2/27/23 1,376,170 1,376,170 - 247,043,322 247,043,322 248,419,492 1,242,494 246,990,822 248,233,316



CPI Margin E.A. 2/27/31 561,153 561,153 - 96,420,387 96,420,387 96,981,540 727,337 96,411,294 97,138,631



YEARS MARGIN OVER CPI E.A. 2/18/22 1,040,358 1,040,358 150,729,488 - 150,729,488 151,769,846 1,617,906 150,675,520 152,293,426



YEARS MARGIN OVER CPI E.A. 2/18/30 1,989,861 1,989,861 - 248,539,638 248,539,638 250,529,499 657,041 248,510,258 249,167,299


SERIES A SUBSERIES A5 - 5

YEARS MARGIN OVER CPI E.A. 6/7/23 1,085,388 1,085,388 280,983,562 - 280,983,562 282,068,950 - - -


SERIES C SUBSERIES C10 - 10

YEARS MARGIN OVER CPI E.A. 6/7/28 832,422 832,422 - 193,928,411 193,928,411 194,760,833 - - -



YEARS MARGIN OVER CPI E.A. 6/7/33 1,355,295 1,355,295 - 303,246,504 303,246,504 304,601,799 - - -



YEARS MARGIN OVER CPI E.A. 6/7/43 1,462,181 1,462,181 - 319,924,931 319,924,931 321,387,112 - - -

10,872,232 10,872,232 672,639,071 1,409,103,193 2,081,742,264 2,092,614,496 122,788,482 983,434,017 1,106,222,499

RUT debtor

entity Name of debtor

Country of

debtor Registration number

Currency or

adjustment

unit

As of December 31, 2018 Accounting values 2017

Frequency of

amortizationEffective rate Nominal rate

Total current Total

More than 3

years up to 5

years

More than 5

years

Total non-

currentTotal Current Non-current

RUT debtor

entity Name of debtor

Country of

debtor Registration number

Up to 90

days




76

Note 24. Commercial accounts payable and other accounts payable

Commercial accounts payable and other accounts payable as of the close, are detailed below:

(1) Includes mainly advances and advance payments from clients and third-parties in an amount of

M$44.261.644 (M$49.189.539 as of December 31, 2017).

Note 25. Provisions for benefits to employees

As of December 31, 2018, compared to December 31, 2017, the Company had obligations for

benefits to employees as follows:

Below is a detailed explanation of the movement for current provisions:

12/31/18 12/31/17

Current M$ M$

Commercial accounts payable

Fuel suppliers 370,726,694 397,769,078

Lubricant suppliers 77,051,145 16,861,670

Accounts payable for goods and services 110,408,230 42,113,884

Other accounts payable

Accounts payable to employees 10,176,501 10,802,444

Other (1) 75,020,151 96,185,542

Total 643,382,721 563,732,618

Non-current

Indemnity agreement (Cerrejón) 7 ,718,135 -

Tax reform 8 ,779,542 8,779,542

Total 16,497,677 8,779,542

12/31/18 12/31/17

M$ M$

Benefits to employees 129,318 131,103

Total 129,318 131,103

12/31/18 12/31/17

M$ M$

Initial balance 131,103 129,690

Disbursements (18,172) (17,458)

Actuarial calculation update 16,387 18,871

Total 129,318 131,103




77

Note 26. Equity

a) Share capital

As of December 31, 2018 and December 31, 2017, the share capital is represented by 195.999.466

shares with a nominal value of COP$1.000, each one fully subscribed and paid as of those dates.

b) Cumulative profit

c) Reserves




78

Note 26. Equity, continuation

c) Reserves, continuation

Nature and purpose of the reserves

Legal and statutory reserves

Legal reserves: Is the reserve that the Company is required by law to create to protect the

Company's equity in the event of loss. The reserve must be equal to 50% of the subscribed capital

and is formed by 10% of each period's profits.

Pursuant to Minutes No. 43 of March 23, 2018, the General Shareholders Assembly approved the

appropriation of reserves in an amount of M$4.354.131. For the year 2017, the General

Shareholders Assembly approved the appropriation of reserves in an amount of M$4.343.715,,

pursuant to Minutes No. 42 of March 30, 2017.

Statutory reserve: Is the reserve that the Shareholders have agreed upon in the bylaws, and once

approved by the Maximum Corporate Body, are mandatory as long as the bylaws have not been

amended or removed or, until they reach the amount provided therein.

Other reserves

Hedge reserve: Is the reserve that has been allocated to recognize the value of the hedge

instruments based on fair value fluctuations.

Other stakes in the equity:

Includes all the differences in foreign currency that arise from the conversion of the foreign

operating financial statements, the increases or decreases in the subordinates equity, that arise from

equity items different from the results.

d) Decreed dividends

On March 23, 2018, the General Shareholder's Meeting of Organización Terpel S.A., agreed to

distribute non-taxable ordinary dividends over 181.424.505 outstanding shares, for an amount of

COP$538,19 per share. The total dividends decreed in 2018 were M$97.640.603.

On March 30, 2017, the General Shareholder's Meeting of Organización Terpel S.A., agreed to

distribute non-taxable ordinary dividends over 181.424.505 outstanding shares, for an amount of

COP$541,59 per share. The total dividends decreed in 2017 was M$98.258.100.




79

Note 27. Profit from shares

The number of outstanding shares as of December 31, 2018 and 2017 for purposes of calculation was

181.424.505.

As of December 31, 2018 and 2017, the Company has repurchased its own shares for 14.574.961, which

reduced the number of outstanding shares to 181.424.505.

Note 28. Income from ordinary activities

The effect of the initial application of IFRS 15 on the Company's income from contracts with customers is

described in Note 3 - y). Due to the transition method chosen in applying IFRS 15, the comparative

information has not been re-expressed to reflect the new requirements.

The Company generates income mainly from sales in its different lines of business Service Stations (EDS),

Natural Gas for Vehicles, Lubricants, Aviation, Marines, Industry, Complementary Services, among other

services.

Income from ordinary activities during the periods ending on December 31, 2018 and 2017, are detailed

below:

Note 29. Cost of sales

The detailed information of the cost of sales is shown below:

31/12/2018 31/12/2017

Profit per share 737.17 1,076.38

For the period ending on

31/12/2018 31/12/2017

M$ M$

Sale of goods 14,566,225,773 12,290,997,717

Provision of services and other direct income 167,734,268 149,022,876

Total 14,733,960,041 12,440,020,593

Por el ejercicio terminado en

31/12/2018 31/12/2017

M$ M$

Cost of fuel sales 13,217,552,235 11,206,561,802

Cost of lubricant sales 3 39,644,186 137,925,518

Provision of services and other direct costs 2 7,894,699 23,082,072

Total 13,585,091,120 11,367,569,392




80

Note 30. Expenses by nature

a) Administration costs

31/12/2018 31/12/2017

M$ M$

Personnel Expenses

Wages and salaries 38,456,292 2 9,906,708

Social security services and other social expenses 6 ,026,545 5 ,234,044

Other personnel expenses 7 ,311,047 6 ,975,642

Total 51,793,884 42,116,394

Depreciation, amortization

Depreciation 5 ,632,623 4 ,701,157

Amortization 25,058,450 2 2,735,564

Total 30,691,073 27,436,721

Other administrative expenses

Professional fees 15,588,736 1 7,923,133

Utilities 12,848,743 1 2,098,839

Maintenance 7,131,479 5 ,929,203

Leases 9,089,338 6 ,874,812

Insurance 8,832,005 9 ,248,821

Other various expenses 2,297,048 1 ,956,767

Taxes 2,248,183 5 ,874,477

Travel expenses 1,897,852 2 ,167,636

Advertising 1,136,937 3 42,723

Total 61,070,321 6 2,416,411

Total administration costs 143,555,278 131,969,526





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Note 30. Expenses per nature, continuation

b) Distribution costs

Note 31. Other expenses and income by function

a) Expenses by function

31/12/2018 31/12/2017

M$ M$

Personnel Expenses

Wages and salaries 57,140,425 49,631,742

Social security services and other social expenses 9 ,279,136 8 ,400,328

Other personnel expenses 5 ,428,278 5 ,122,684

Total 71,847,839 63,154,754

Depreciation, amortization

Depreciation 51,820,315 47,602,547

Amortization 116,626,110 80,738,934

Total 168,446,425 128,341,481

Other distribution costs

Utilities 136,124,403 122,984,503

Maintenance and repairs 48,778,604 53,976,433

Leases 43,967,014 43,782,806

Advertising 52,360,466 42,073,641

Taxes 30,030,178 26,259,778

Other distribution costs 31,749,347 19,848,531

Professional fees 8 ,889,742 12,681,378

Travel expenses 3 ,430,387 5 ,768,254

Total 355,330,141 327,375,324

Total distribution costs 595,624,405 518,871,559





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Note 31. Other expenses and income by function, continuation

a) Expenses by function, continuation

(1) Correspond to fees for legal advice, tax, technical, bank fees, legal expenses, travel expenses,

maintenance of computer equipment and communication, among others, related to the Pegasus

project product of the purchase to ExxonMobil.

b) Other income by function

(1) Corresponds to the profit recognized for the purchase under advantageous conditions of the

lubricants business of ExxonMobil Colombia (today Distribuidora Andina de Combustibles

S.A.). See note 4.

31/12/2018 31/12/2017

M$ M$

Tax on financial movements 53,803,559 39,391,952

Commercial credit impairment Gazel (see note 18) 77,099,521 -

Other expenses by function 6,331,512 5 ,768,032

Assumed taxes 1,809,075 1 ,375,298

Fines and penalties 1,356,317 1 ,847,709

Donations 6,173,893 5 ,776,875

Loss in sale of subsidiaries - 5 ,629,059

Indemnities 803,832 -

Pegasus project (1) 28,771,964 -

Effect for coverage offset (see note 4) 59,547,100 -

Loss from sale of goods 2,903,856 8 8,896

Total 238,600,629 59,877,821


31/12/2018 31/12/2017

M$ M$

Income for exclusivity right (1) 83,009,592 -

Reimbursement of costs and expenses 8,867,483 9,118,415

Other income by function 9,366,412 4,708,540

Reimbursement of provisions 3,351,051 1,581,424

Dividends from stock corporations 6,456,221 2,335,610

Insurance intermediaries 2,984,026 3,451,801

Discounts 296,190 195,896

Profit from sale of fixed assets (2) 8,226,782 4,185,242

Total 122,557,757 25,576,928

122,557,757 25,576,928





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(2) On July 3, 2018, the Company sold part of its lubricant assets, that is, the Bucaramanga factory;

the laboratory equipment; the industry part of the current contracts that included the supply of

Maxter and Maxter Progresa; and the Maxter and Maxter Progresa brands, to Distribuidora

Andina de Combustibles S.A. (formerly ExxonMobil de Colombia SA), for a sale price of

M$44.212.833, generating a pre-tax profit of M$6.964.878.

This operation has been carried out with strict observance of the deadlines and conditions

established by the SIC. These should ensure the proper functioning of the markets during the

integration process (see note 4).

Note 32. Financial result

a) Income and other financial costs

(1) Interest expense increased due to the execution of the syndicated loan (March 2018) for the

acquisition of the companies owned by Mobil Petroleum Overseas Company Ltd. and

ExxonMobil Ecuador Holding BV SA and the bond issuance (June 2018).

b) Difference in exchange

31/12/2018 31/12/2017

M$ M$Financial income

Interest from loans and accounts receivable 5,031,101 6,196,661

Other financial income 1,303,707 1,843,640

Total financial income 6,334,808 8,040,301

Financial costs

Loan interests and other financial obligations (1) 171,219,428 88,882,801

Bank Expenses 2,090,406 2,834,817

Other financial costs 1,079,761 1,635,262

Total financial costs 174,389,595 93,352,880





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Note 33. Income tax

a) Expenses for income tax by current and deferred parts

(1) For the year 2018, as a result of the tax reform (change in income rates), it mainly affected:

Gazel's commercial credit of M$13.354.832 and accumulated depreciation of M$21.740.546. On

the other hand, the reversion of the deferred tax for the impairment of Gazel’s commercial credit

for M$23.129.856.

31/12/2018 31/12/2017

M$ M$

From assets

Cash and cash equivalents (2,097,959) (274,859)

Commercial debtors and other accounts receivable 1,151,765 31,316

Accounts receivable related companies 80,122 (35,605)

Total (866,072) (279,148)

From liabilities

Commercial creditors and other accounts payable (3,606,580) (143,511)

Accounts payable related companies (103,203) 4,256

Other liabilities - 7,001,700

Total (3,709,783) 6,862,445

Difference in exchange, net (4,575,855) 6,583,297


31/12/2018 31/12/2017

M$ M$

Expense for current taxes 6 7,896,083 125,692,161

Expense for non-current taxes, net 6 7,896,083 125,692,161

Differed expenses for taxes relative to the creation and

reversal of temporary differences (1) (57,699,226) 1 5,265,612

Taxes for deferred expenses, net (57,699,226) 1 5,265,612

Total expenses for income tax 1 0,196,857 140,957,773





85

Note 33. Income tax, continuation

b) Reconciliation of the expense for taxes using the legal rate with the expense for taxes using the effective rate

For the 2018 period, there are changes in the applicable tax rate; the income tax rate of 37% (income tax 33%, surtax 4%), in the year 2017 it was

40% (income tax 34%, surtax of 6%), additionally the deferred tax also has an impact in the expense for taxes to profits resulting from the gradual

reduction in the rate of income tax and complementary taxes, determined in the tax reform (Financing Law).

The income tax returns for the taxable years 2016 and 2017 are open for fiscal review by the tax authorities; no additional taxes are expected from

such inspection.

31/12/2018 31/12/2017

M$ M$

% %

Profit before tax 143,938,207 336,238,980

Expense for tax using the legal rate 37.00% 53,257,137 40.00% 134,495,592

Tax effect of non-taxable ordinary income -25.63% (36,893,855) -4.43% (14,904,682)

Tax effect of non-deductible expenses 16.75% 24,114,009 6.31% 21,218,108

Tax effect for taxes provided in excess in prior periods 3.04% 4,375,401 -0.31% (1,050,427)

Taxation calculated at applicable rate -3.63% (5,226,188) 0.00% -

Tax effect in changes in taxable rates -0.02% (32,000) -0.10% (333,633)

Other increases (reductions) in tax charges -20.42% (29,397,647) 0.46% 1,532,815

Total adjustments to expense for tax using the legal rate -29.92% (43,060,280) 1.92% 6,462,181

Total expenses for income tax, net 7.08% 10,196,857 41.92% 140,957,773





86


c) Tax reform impact

With the entry into force of Law 1943 of 2018 (Financing Law), it established changes in income

tax matters. Below is a summary of some of these:

• Gradual reduction in the corporate income tax and complementary rate as follows: taxable year

2019, 33% rate; 2020 taxable year, 32% rate; 2021 taxable year, 31% rate; and as of taxable year

2022, 30% rate. For financial institutions, a surtax of 4% is created for the taxable year 2019 and

3% for the taxable year 2020 and 2021 when the net taxable income exceeds 120.000 UVT.

• Gradual reduction and finally an elimination to the presumed income in the following terms: taxable

year 2018, tariff of 3.5%; 2019 taxable year, 1.5% rate; 2020 taxable year, 1.5% rate; and from the

taxable year 2020, 0% rate.

• General rule that determines that 100% of the taxes, rates and contributions effectively paid in the

taxable year that have a causal relationship that generates income (except income tax) will be

deductible. As special rules, this law indicated that 50% of the GMF will be deductible, regardless

of whether or not it has a causal relationship with the income generating activity.

• 50% of the industry and commerce tax may be deductible from the income tax in the taxable year in

which it is actually paid, and to the extent that it has a causal relation with its economic activity. As

of the year 2022 it can be discounted 100%.

• VAT on the import, formation, construction or acquisition of productive real fixed assets including

services may be taken as a discount on income tax only by those responsible for sales tax

• The sub-capitalization rule is amended providing that the maximum amount of indebtedness will be

the liquid assets of the immediately preceding year multiplied by two (before multiplied by three)

and it is specified that the indebtedness must correspond to loans with residents and non-residents.

This rule will not be applied to entities supervised by the Superintendency of Finance, factoring

companies, unproductive companies or to the cases of financing transportation infrastructure

projects, nor to the financing of utility infrastructure projects.

• In relation to the tax on dividends, the following modifications were introduced:

✓ The withholding tax rate was increased to 7.5% on untaxed dividends, decreed for the benefit

of foreign companies and entities, non-resident natural persons and permanent establishments.




87


c) Tax reform, continuation

✓ The rates applicable to non-taxed dividends decreed for the benefit of natural persons residing

in the country and illiquid successions of residents resident in the country was modified,

providing a marginal rate of 15% for dividends exceeding 300 UVT ($10.281.000 for the year

2019).

✓ It was established that taxed dividends will be determined: (i) applying the income rate

corresponding to the year in which they are decreed (33% year 2019, 32% year 2020, 31%

year 2021, and 30% year 2022 and forward); and (ii) over the remainder, the rate

corresponding to the non-taxed dividend will be applied, depending on the beneficiary (if it is

a resident natural person or illiquid succession of resident originator, the table will be applied

and for all other cases the 7,5% rate will apply).

✓ A withholding tax regime was established on dividends decreed for the first time to national

companies, which will be transferable to the ultimate beneficiary, a natural resident or

investor resident abroad. In this case, the non-taxed dividend will be subject to the 7.5% rate;

while the taxed dividend will be subject to the income rate of the year in which it is decreed

added in the 75% tariff on the remainder.

✓ Dividends decreed with a charge to profits for the years 2016 and prior will keep the current

treatment for that moment; and those corresponding to profits for the years 2017 and 2018

will be governed by the rates set forth in Law 1819 of 2016 if they were decreed as

enforceable before December 31, 2018, otherwise, they must adhere to the new rules of the

Financing Law.

Note 34. Contingencies

As a result of the purchase of the Cartagena plant, Organización Terpel S.A., is obliged to hold

harmless the third-party purchaser (Inversiones Primax S.A.S. and Primax Hondings S.A.S.) in the

following events:

a) For any action or claim related to the Mobil lubricants business that was transferred by DAC to

Terpel, for a maximum term equal to the statute of limitations of the action under Colombian

law (10 years) and up to an amount equal to the final price of the Fuels Resale SPA -Share

Purchase Agreement (after adjustments). This value has not yet been defined, because no action

or claim affecting this guarantee is known or presented, which makes its estimation

impracticable.

b) On environmental issues only for violation or inaccuracy of the representations and warranties

established in the SPA, for a term of 10 years and a value of MUSD5.000.

c) On transfer pricing for violation or inaccuracy of the representations and warranties established

in the SPA, for a term of 5 years and a value of MUSD5.000.

Note 35. Subsequent events

Between December 31, 2018 and the date of issuance of these separate financial statements, there have

been no significant subsequent events that could affect them.

organizaciÓn terpel s.a. separate financial statements in ... · 1 organizaciÓn terpel s.a....

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