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Duro Felguera, S.A.

Annual Accounts at 31 December 2014 and Directors’ Report for 2014

DURO FELGUERA, S.A.

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Balance sheet Income statement Statement of changes in equity Statement of cash flows Notes to the annual accounts 1 General information 2 Basis of preparation 3 Accounting policies 3.1 Intangible assets 3.2 Property, plant and equipment 3.3 Investment properties 3.4 Impairment of non-financial assets 3.5 Financial assets 3.6 Inventories 3.7 Derivative financial instruments and hedging activities 3.8 Cash and cash equivalents 3.9 Equity 3.10 Financial liabilities 3.11 Grants received 3.12 Current and deferred taxes 3.13 Provision for liabilities and charges and other trade provisions 3.14 Employee benefits 3.15 Share-based payments 3.16 Joint ventures

3.17 Revenue recognition 3.18 Leases 3.19 Foreign currency transactions 3.20 Related-party transactions 4 Financial risk management 5 Business combinations 6 Intangible assets 7 Property, plant and equipment 8 Investment properties 9 Analysis of financial instruments

9.1 Analysis by category 9.2 Analysis by maturities 9.3 Credit quality of financial assets

10 Investments in Group companies, jointly-controlled entities and associates 11 Loans and receivables 12 Derivative financial instruments and hedging activities 13 Inventories 14 Cash and cash equivalents 15 Capital, share premium, reserves, prior-year results and

profit/(loss) for year 16 Share-based payments 17 Capital grants received 18 Creditors and payables 19 Long-term employee benefit commitments 20 Provisions for other liabilities and charges 21 Deferred taxes 22 Income and expense 23 Corporate income tax and tax situation 24 Financial income/(expense) 25 Cash flows from operating activities 26 Cash flows from investing activities 27 Cash flows from financing activities 28 Guarantees, commitments and other contingencies 29 Temporary consortium activities and branches 30 Directors’ and Senior Management remuneration 31 Other related-party transactions 32 Environmental information 33 Events after the reporting period

34 Auditors’ fees

DURO FELGUERA, S.A.

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BALANCE SHEET AS AT 31 DECEMBER 2014 AND 2013 (Expressed in thousand euro)

At 31 December

ASSETS Note 2014 2013

NON-CURRENT ASSETS

Intangible assets 6 9,297 8,392

Property, plant and equipment 7 41,611 18,822

Investment properties 8 15,388 15,432

Long-term investments in Group companies and

associates

81,228 71,866

Equity instruments 10 81,228 71,866

Long-term investments 9 4,214 1,688

Equity instruments 4,104 1,535

Loans to third parties 11 89 122

Other financial assets 11 21 31

Deferred tax assets 21 16,454 18,453

TOTAL NON CURRENT ASSETS 168,192 134,653

CURRENT ASSETS

Inventories 13 4,901 1,064

Trade and other receivables 9-11 215,807 257,096

Trade receivables for sales and services 177,069 210,847

Trade receivables, Group companies and associates 31 10,359 2,963

Sundry debtors 7,197 5,081

Accrued wages and salaries 106 193

Current tax assets 11,123 17,250

Other receivables from Public Administrations 9,953 20,762

Short-term investments in Group companies and

associates

9-11-31

71,955 47,534

Loans to companies 8,167 14,999

Other financial assets 63,788 32,535

Short-term investments 9-11 4,292 5,671

Loans to companies 14 905

Derivative financial instruments 12 - 354

Other financial assets 4,278 4,412

Short-term prepayments and accrued income 640 474

Cash and cash equivalents 9-14 190,831 236,202

TOTAL CURRENT ASSETS 488,426 548,041

TOTAL ASSETS 656,618 682,694

Notes 1 to 34 to the accounts are an integral part of these annual accounts.

DURO FELGUERA, S.A.

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BALANCE SHEET AS AT 31 DECEMBER 2014 AND 2013 (Expressed in thousand euro)

At 31 December

EQUITY AND LIABILITIES Note 2014 2013

EQUITY Shareholders' funds 183,172 178,518

Capital 15 80,000 80,000 Reserves 15 159,596 144,414 Treasury shares 15 (87,719) (87,775) Prior-year results 15 4,918 4,105 Profit/(loss) for the year 15 45,577 56,974 (Interim dividend) 15 (19,200) (19,200)

Value adjustments 353 (661)

Hedging activities 12 254 (1,246) Translation differences 99 585

Grants, donations and bequests received 17 2,156 1,922

TOTAL EQUITY 185,681 179,779

NON-CURRENT LIABILITIES

Long-term provisions 16,897 2,343

Long-term employee benefit commitments 19 1,020 1,132 Other provisions 20 15,877 1,211

Long-term payables 9-18 159,626 77,408

Bank loans 152,705 71,048 Derivative financial instruments 12 1,120 88 Other financial liabilities 5,801 6,272

Long-term payables to Group companies and associates 9-18-31 3,000 3,000

Long-term payables to Group companies 3,000 3,000 Deferred tax liabilities 21 2,920 2,907

TOTAL NON-CURRENT LIABILITIES 182,443 85,658

CURRENT LIABILITIES

Short-term provisions 20 25,758 46,302

Short-term payables 9-18 9,829 44,859

Bank loans 7,769 42,748 Derivative financial instrumentss 12 216 - Other financial liabilities 1,844 2,111

Short-term payables to Group companies and associates 9-18-31 28,498 41,229

Trade and other payables 9-18 224,409 284,859

Trade payables 75,135 87,140 Trade payables, Group companies and associates 31 10,414 17,136 Sundry payables 4,724 3,985 Accrued wages and salaries 4,906 4,760 Current tax liabilities 145 3 Other amounts payable to Public Administrations 10,893 10,043 Advance payments from customers 118,192 161,792

Short-term accruals and deferred income - 8

TOTAL CURRENT LIABILITIES 288,494 417,257

TOTAL LIABILITIES AND EQUITY 656,618 682,694


DURO FELGUERA, S.A.

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INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2014 AND 2013 (Expressed in thousand euro)

Year ended

31 December

Note 2014 2013

CONTINUING OPERATIONS

Revenue 22 227,891 331,026

Sales 221,057 324,813

Services rendered 6,834 6,213

Changes in semi-finished products (153) 15

Own work capitalised 2,692 -

Raw materials and other consumables 22 (121,574) (159,753)

Consumption of raw materials and other consumables (98,981) (93,143)

Subcontracted work (22,593) (66,610)

Other operating income 404 208

Sundry and other income 7 133

Operating grants released to income during the year 22 397 75

Personnel expenses 22 (32,367) (35,780)

Wages, salaries and similar remuneration (27,341) (30,736)

Social welfare expenses (5,026) (5,044)

Other operating expenses (44,512) (71,071)

External services (59,942) (69,719)

Taxes (878) (995)

Losses, impairment and changes in trade provisions 16,308 (357)

Fixed asset depreciation/amortisation (1,448) (1,493)

Release of non-financial capital grants and other 17 87 146

Impairment and profit/(loss) on fixed asset disposals 22 726 79

Profit/(loss) on disposals and other 726 79

Other profit /(loss) 539 1,600

OPERATING PROFIT/(LOSS)

32,285 64,977

Financial income 26,914 21,978

Financial expenses (4,376) (2,189)

Change in fair value of financial instruments (165) 6

Exchange differences 9,276 (8,335)

Impairment and profit/(loss) on disposal of financial

instruments (15,776) (13,226)

NET FINANCIAL INCOME/(EXPENSE) 24 15,873 (1,766)

PROFIT/(LOSS) BEFORE TAX 48,158 63,211

Corporate income tax 23 (2,581) (6,237)

PROFIT/(LOSS) FOR YEAR FROM CONTINUING OPERATIONS 45,577 56,974

PROFIT/(LOSS) FOR THE YEAR 45,577 56,974


DURO FELGUERA, S.A.

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STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2014 AND 2013 A) TOTAL STATEMENT OF CHANGES IN EQUITY (Expressed in thousand euro)

Authorised

capital Reserves

(Treasury shares)

Prior-year results

Profit/(loss) for

the year

(Interim dividend)

Adjust-ments due to

changes in value

Grants,

donations and bequests received

TOTAL

BALANCE AT 1 JANUARY 2013 80,000 104,071 (2,909) 837 113,330 (32,000) 2,189 1,815 267,333

Total recognised income and expenses - - - - 56,974 - (2,232) (102) 54,640 Transactions with shareholders or owners Transactions in treasury shares - - (84,866) - - - - - (84,866) - Movement in equity resulting from business combination - (2,513)

-

-

-

-

(618)

209

(2,922)

- Other transactions with shareholders or owners - -

-

(2,709)

-

-

- -

(2,709)

Other movements in equity - 43,353 - 5,977 (113,330) 12,800 - - (51,200) Other movements - (497) - - - - - - (497)

BALANCE AT 31 DECEMBER 2013 80,000 144,414 (87,775) 4,105 56,974 (19,200) (661) 1,922 179,779

BALANCE AT 1 JANUARY 2014 80,000 144,414 (87,775) 4,105 56,974 (19,200) (661) 1,922 179,779

Total recognised income and expenses - - - - 45,577 - 1,014 234 46,825

Transactions with shareholders or owners

- Transactions in treasury shares - - 56 - - - - - 56

- Movement in equity resulting from business combination - -

- - - -

- - -

- Other transactions with shareholders or owners - -

- (2,387) - -

- - (2,387)

Other movements in equity - 15,374 - 3,200 (56,974) - - -

-(38,400)

Other movements - (192) - - - - - - (192)

BALANCE AT 31 DECEMBER 2014 80,000 159,596 (87,719) 4,918 45,577 (19,200) 353 2,156 185,681


DURO FELGUERA, S.A.

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STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2014 AND 2013 B) STATEMENT OF RECOGNISED INCOME AND EXPENSES (Expressed in thousand euro)

Year ended

at 31 December

Note 2014 2013

Profit/(loss) recognised in the income statement 15 45,577 56,974

Income and expenses allocated directly to equity:

Grants, donations and bequests received 17 421

Cash flow hedges 2,539 (3,509)

Translation differences (694) 851

Tax effect 21 (957) 426

Total income and expense allocated directly to equity 1,309 (2,232)

Transfers to the income statement

Grants, donations and bequests received 17 (87) (146)

Cash flow hedges - -

Tax effect 21 26 44

Total transfers to the income statement (61) (102)

TOTAL RECOGNISED INCOME AND EXPENSES 46,825 54,640


DURO FELGUERA, S.A.

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STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2014 AND 2013 (Expressed in thousand euro)

Year ended

31 December

Note 2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES 25

Profit/(loss) for the year before tax 48,158 63,211

Adjustments to results (26,325) (1,624)

Changes in working capital (58,280) (94,801)

Other cash flows from operating activities 19,000 11,782

(17,447) (21,432)

CASH FLOWS FROM INVESTING ACTIVITIES 26

Amounts paid on investments (16,024) (8,177)

Receipts from disinvestments 726 1,487

(15,298) (6,690)

CASH FLOWS FROM FINANCING ACTIVITIES 27

Receipts and payments on financial liability instruments 25,853 94,777

Dividend payments and return on other equity instruments (40,787) (53,909)

Other cash flows from financing activities (130) (85,363)

(15,064) (44,495)

NET INCREASE/DECREASE IN CASH AND CASH

EQUIVALENTS (47,809) (72,617)

Cash and cash equivalents at beginning of the year 14 236,202 242,414

Cash received from business combinations - 67,818

Profit/(loss) on exchange differences in cash and cash

equivalents 2,438 (1,413)

Cash and cash equivalents at end of the year 14 190,831 236,202


DURO FELGUERA, S.A. NOTES TO THE ANNUAL ACCOUNTS FOR 2014 (Thousand euro)

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1. General information

Duro Felguera, S.A. is the parent company of the Duro Felguera Group and was incorporated in La

Felguera (Asturias) on 22 April 1900 for an indefinite period as a public limited company ("sociedad

anónima"). Prior to 25 June 1999 its business name was Sociedad Metalúrgica Duro Felguera, S.A.

This name was changed to Grupo Duro Felguera, S.A. and the company's name was changed again

on 26 April 2001 to its current business name. Its registered office for mercantile and tax purposes is

located in Parque Científico Tecnológico, calle Ada Byron 90, Gijón.

The Company engages in the business of construction, manufacture and assembly in the metal,

boiler-making, smelting and capital goods industries, under turnkey contracts, and the provision of

marketing, distribution, construction and installation services involving energy from solid and liquid

fuels. It also engages in the promotion and creation of industrial, commercial and service companies,

and their extension, development and modernisation in Spain and abroad, within the activities that

make up its corporate objects, as well as the acquisition, holding and utilisation of fixed and variable

interest securities in all kinds of companies and entities.

As mentioned in Note 5, on 26 February 2013 the directors of Duro Felguera S.A., Felguera Parques y

Minas S.A.U., Duro Felguera Plantas Industriales, S.A.U., and Felguera Grúas y Almacenaje, S.A.U.

drew up and signed a joint merger plan in compliance with the provisions of Law 3/2009 of 3 April

2009 on structural changes in trading companies and Article 226 et seq of the Mercantile Registry

Regulations.

Under the merger plan, the date as from which all the operations of the absorbed companies were

considered to be carried out by the acquiring company was 1 January 2014.

Services are provided mainly in Spain, Eurozone countries and Latin America.

All Duro Felguera S.A.'s shares are listed on the Madrid, Barcelona and Bilbao Stock Exchanges, and

on the continuous market.

Control over the Company is shared among the principal shareholders (Note 15).

2. Basis of preparation

2.1 Fair presentation

The annual accounts have been prepared on the basis of the Company’s accounting records and are

presented in accordance with prevailing commercial legislation and the provisions of the Chart of

Accounts approved by Royal Decree 1514/2007 as amended by Royal Decree 1159/2010 so as to

present fairly the Company’s equity, financial position and results and accurately reflect cash flow in

the cash flows statement.

The annual accounts were drawn up by the directors on 27 February 2015 and will be submitted for

the approval of the shareholders at the Annual General Meeting. They are expected to be approved

without any change.

The figures in these annual accounts are shown in thousand euro, unless explicitly stated otherwise.


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2.2 Accounting principles

The accompanying annual accounts have been prepared in accordance with generally accepted

accounting principles and measurement rules described in Note 3. All mandatory accounting

principles having a significant effect on these annual accounts have been applied.

2.3 Comparability

In accordance with Spanish commercial legislation, the Company's directors have included the figures

for the previous year relating to each item in the 2014 balance sheet, income statement, statement of

changes in equity and statement of cash flows, for purposes of comparison.

The notes to the accounts also include quantitative information on the previous year, except when a

specific accounting standard provides that this is not necessary.

2.4 Grouping of figures

For clarity, the accounts are presented in a summarised form. When appropriate, an analysis is

provided in the relevant note to the accounts.

2.5 Consolidated annual accounts

The Company is the parent of a group of companies in accordance with Royal Decree 1159/2010 and

is therefore required to present consolidated accounts.

For clarity, the directors have chosen to present the consolidated annual accounts separately. These

consolidated annual accounts have been drawn up and signed as at 27 February 2015 and will be

filed with the Mercantile Registry of Oviedo.

2.6 Accounting estimates and judgments

The preparation of the consolidated annual accounts requires that management make estimates and

judgments that may affect the accounting policies adopted and the amount of related assets, liabilities,

revenues, income and the scope of related disclosures. Estimates and assumptions are based, among

other aspects, on past experience or other events deemed reasonable taking into account the

circumstances at the year end date, the result of which forms the basis for estimating the carrying

amounts of assets and liabilities that cannot be immediately calculated in any other manner. Actual

results may differ from estimated results. These estimates and judgments are reassessed

continuously.

Accounting estimates are considered to be significant if the nature of the estimates and judgments is

material and if the impact on the Group's financial position or operating yields is material. The main

estimates applied by the Company are as follows:

a) Warranty claims

The Company provides warranties of between one and two years for its projects, mainly in the turnkey

project line of business. Management estimates the related provision for future warranty claims based

on its experience and the degree of complexity of the product, its experience with respect to the

customer's quality expectations and the country risk of the territory in which the project is located.


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The factors that could affect the information used to estimate claims include counter-guarantees

covering works performed by collaborating companies.

b) Litigation

The Company establishes the necessary provisions on the basis of its legal advisors' estimates to

cover forecast outflows of cash which may derive from litigation involving employees and trade unions

for the amounts claimed, discounted if they are expected to exceed one year.

c) Income tax and deferred tax assets

The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in

determining the worldwide provision for income taxes. There are many transactions and calculations

for which the ultimate determination of the tax is uncertain. The Group recognises the liabilities that

may arise from future tax claims based on the estimate of whether additional taxes will arise. When

the final tax result differs from the amounts initially recognised, such differences will have an impact on

corporate income tax and provisions for deferred tax in the year in which the relevant calculation is

made.

If changes in the judgements used by management in determining the final results caused a change of

10% in the effective rate (Note 32), this would result in an increase/decrease of €623 thousand in the

corporate income tax liability.

d) Useful lives of property, plant and equipment and intangible assets

Company management determines the estimated useful lives and related depreciation/amortisation

charges for its property, plant and equipment and intangible assets. The useful lives of fixed assets

are estimated based on the period over which the assets will generate economic benefits.

At each reporting date the Company reviews the useful lives of assets and if the estimates differ from

those made previously the effect of the change is recorded on a prospective basis as from the year in

which the change is made.

e) Accounts receivable and financial assets

The Company makes estimates relating to the collectability of trade receivables for projects affected

by disputes to be resolved or litigation in progress deriving from acceptance issues regarding executed

work or the failure to comply with contractual clauses linked to the return on assets delivered to

customers. In addition, the Company makes estimations to evaluate the recoverability of available-for-

sale financial assets based mainly on the financial health and short-term business prospects of the

investee.


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f) Revenue recognition

The revenue recognition policy applied by the Company is based on the degree-of-completion

method. Percentage-of-completion is calculated as costs incurred under a contract as a percentage of

the total estimated costs to be incurred to perform the contract. This revenue recognition method is

applied only when the outcome of the contract may be reliably estimated and it is likely that the

contract will generate profits. If the outcome of the contract may not be reliably estimated, revenues

are recognised to the extent that costs are recovered. When it is likely that the costs of a contract will

exceed the revenues, the loss is immediately recognised as an expense. When applying the

percentage-of-completion method, the Company makes significant estimations relating to the total

costs necessary to perform the contract. These estimations are reviewed and assessed regularly in

order to verify whether or not a loss has been generated and whether it is possible to continue to apply

the percentage-of-completion method, or is necessary to re-estimate the expected margin on the

project.

During the project, the Company also estimates probable contingencies related to the increase in the

total estimated cost and adjusts revenue recognition accordingly.

A Group company has recorded claims in progress quantified at €48 million. Considering the degree of

completion and margin of the project, any change in the estimation would have a direct impact on the

income statement. However, negotiations with the customer are approaching conclusion and therefore

the directors do not expect significant changes as regards the sum that is finally agreed.

Although these estimates were made by management using the best information available at the year

end, on the basis of their best estimation and market knowledge, possible future events may require

that the Company change them in subsequent years. In accordance with current legislation, the effects

of changes in estimation will be recognised prospectively in the consolidated income statement.

g) Portfolio

The Company analyses the recoverability of certain shareholdings in Group companies taking the

recoverable amounts of those companies based on value-in-use calculations (Note 10).

h) Bolivar exchange rate

In February 2013, the Venezuelan government announced a devaluation of the official exchange rate

of the Venezuelan bolivar against the US dollar from 4.30 per dollar to 6.30 per dollar (CADIVI

exchange rate).

Subsequently, in March 2013, the government announced the creation of an alternative mechanism

known as the "Sistema Complementario de Administración de Divisas" (Complimentary System for

Foreign Exchange Administration) or "SICAD". lt operates as an auction system for organisations to

acquire foreign currency for imports, but it is not a free auction as the counterparty that offers the

highest price is not necessarily the one entitled to the currency concerned and each auction has

different rules (for example, changes in the minimum and maximum amount of currency that may be

obtained). The quantity of available dollars is limited and companies do not usually receive the total

amount they wish to obtain.


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The exchange rate arising in SICAD auctions was not published prior to December 2013 and differed

from one organisation to another, depending on the price obtained at each auction. However, in

December 2013, the Venezuelan government issued a new exchange agreement which allows the

Central Bank to publish the average SICAD rate each month, During the weeks from 23 December to

30 December the Central Bank published on its website the average exchange rate obtained from

auctions 13 and 14, which was 11.30 bolivar/dollar.

On 24 January 2014 the 25th exchange agreement came into effect whereby the CADIVI ceased to be

the reference exchange rate for the repatriation of dividends. Instead, only the SICAD exchange rate

could be applied, under Article 1. f ) of said agreement.

Subsequently, on 24 March 2014, in accordance with the 27th exchange agreement, the SICAD II

Alternative Currency Exchange System came into effect which extends currency purchase and sale

through a larger number of entities (Venezuelan securities houses, state-owned banks and private

banks). From inception to 31 December 2014 the Central Bank of Venezuela has published the results

of the 191 auctions held, with an average bolivar/dollar exchange rate of 49.95. The exchange rate

resulting from the auction at 31 December 2014 was 49.99 bolivar/dollar.

Therefore, at 31 December 2014 the Company has chosen to use the SICAD II exchange rate (49.99

bolivar/dollar) for the translation of the financial statements of its subsidiaries domiciled in Venezuela

as it considers that this is the exchange rate that will be applied to potential dividends and the rate that

best reflects the country's economic reality at 31 December 2014.

3. Accounting policies

3.1. Intangible assets

Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and

bring to use the specific software. These costs are amortised over their estimated useful lives (3 to 5

years).

Expenses associated with software maintenance are recognised when incurred. Costs directly related

to the production of identifiable and unique computer programs controlled by the Company that will

probably generate economic benefits exceeding costs beyond one year are recognised as intangible

assets.

3.2. Property, plant and equipment

Property, plant and equipment are stated at acquisition price or production cost less accumulated

depreciation and accumulated impairment losses recognised.

Costs incurred to extend, modernise or improve property, plant and equipment are only recognised as

an increase in the value of the asset when the capacity, productivity or useful life of the asset is

extended and it is possible to ascertain or estimate the carrying amount of the assets that have been

replaced in inventories.


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The cost of major repairs is capitalised and depreciated over the estimated useful life of the asset,

while recurring maintenance costs are charged to the income statement in the year in which they are

incurred.

Depreciation of property, plant and equipment, with the exception of land, which is not depreciated, is

calculated systematically using the straight-line method over the assets’ estimated useful lives based

on the actual decline in value brought about by operation, use and possession. The estimated useful

lives are as follows:

Estimated useful

life, years

Buildings 7 to 57

Plant and machinery 4 to 33

Fixtures, fittings, tooling and furnishings 3 to 15

Other fixed assets 3 to 20

The residual values and useful lives of assets are reviewed and adjusted, if necessary, at each

balance sheet date.

If an asset’s carrying amount is less than its estimated recoverable amount, its carrying amount is

written down immediately to its recoverable amount (Note 3.4).

Gains and losses on the disposal of property, plant and equipment are calculated by comparing the

sale revenue with the carrying amount and are recognised in the income statement.

3.3. Investment properties

Investment properties comprise land and buildings owned by the Company to obtain capital gains on a

long-term basis and are not occupied by the Company.

The assets included under this heading are presented at acquisition cost less accumulated

depreciation and any impairment losses.

Depreciation of investment property is charged on a straight-line basis over the asset’s estimated

useful life, which for constructions is 7 to 57 years.

3.4. Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for

impairment. Assets subject to amortisation/ depreciation are tested for impairment whenever events or

changes in circumstances indicate that carrying value may not be recoverable. An impairment loss is

recognised for the amount by which the asset's carrying amount exceeds its recoverable amount,

understood as the asset's fair value less the higher of costs to sell and value in use. For the purposes

of assessing impairment losses, assets are grouped together at the lowest level for which there are

separately identifiable cash flows (Cash Generating Units).

Non-financial assets which are impaired are reviewed at the balance sheet date for reversal of the

loss.


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3.5. Financial assets

The Company classifies its investments into the following categories: loans and receivables,

investments that it intends to hold to maturity, investments in the equity of Group companies, jointly

controlled entities and associates and financial assets measured at fair value through profit or loss.

The classification depends on the purpose for which the investments were acquired. Management

establishes the classification of investments upon initial recognition and reviews the classification at

each reporting date.

a) Loans and receivables:

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are

not quoted on an active market. They are included in current assets, except for maturities greater than

12 months from the date of the balance sheet. These are classified as non-current assets. Loans and

receivables are included in Loans to companies and Trade and other receivables in the balance sheet

(Note 11).

Financial assets are initially carried at fair value, including directly attributable transaction costs, and

are subsequently measured at amortised cost. Accrued interest is recognised at the effective interest

rate, which is the discount rate that brings the instrument’s carrying amount into line with all estimated

cash flows to maturity. Trade receivables falling due in less than one year are carried at their face

value at both initial recognition and subsequent measurement, provided that the effect of not

discounting flows is not significant.

At the year end at least, the necessary value adjustments are made for impairment losses when there

is objective evidence that not all amounts due will be collected.

The amount of the impairment loss is the difference between the asset’s carrying amount and the

present value of estimated future cash flows, discounted at the effective interest rate prevailing at the

date of initial recognition. Value adjustments, and reversals, where applicable, are recognised in the

income statement.

b) Investments held to maturity:

Held-to-maturity financial assets are debt securities with fixed or determinable payments and fixed

maturity, that are traded on an active market and that Company management has the positive

intention and ability to hold to maturity. If the Company sold a material amount of held-to-maturity

financial assets, the entire category would be reclassified as available for sale. These financial assets

are included in non-current assets, except for those maturing in less than 12 months of the balance

sheet date that are classified as current assets

c) Investments in the equity of group and jointly-controlled companies and associates:

Investments are stated at cost less, where appropriate, accumulated value adjustments for

impairment. Nonetheless, when there is an investment prior to its classification as a Group company,

jointly-controlled entity or associate, its carrying value prior to that classification is regarded as the

investment cost. Previous value adjustments accounted for directly in equity are held under this

heading until they are written off.


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If there is objective evidence that the carrying value is not recoverable, the relevant value adjustments

are reflected for the difference between the carrying value and recoverable amount, understood as the

higher of fair value less costs to sell and the present value of cash flows from the investment. Unless

better evidence is available of the recoverable amount, when estimating the impairment of these

investments, the investee's equity is taken into account, adjusted for any latent capital gains existing at

the valuation date. The value adjustment and, if appropriate, its reversal, are reflected in the income

statement for the year in which they arise

d) Financial instruments measured at fair value through profit or loss

This category has two sub-categories: financial assets acquired for trading and those designated at

fair value through profit or loss at inception. A financial asset is classified in this category if acquired

principally for the purpose of selling in the short-term or if so designated by management. Derivatives

are also classified as held for trading unless they are designated as hedging instruments. Assets in

this category are classified as current assets if they are held for trading or are expected to be realised

within 12 months from the balance sheet date.

These financial assets are stated both at inception and afterwards at their fair value, and the changes

in this value are taken to the income statement for the year. Transaction costs directly attributable to

the acquisition are recognised in the income statement for the year.

3.6. Inventories

lnventories of work in progress relate to the costs incurred by the Company with respect to

works/services that are currently being executed, without the related revenues having yet been

received. They are stated at the acquisition price or production cost. Management does not consider

there to be any risk in invoicing such costs incurred to customers because they pertain to the

performance of services that have been formalised with customers under the relevant contracts or

orders.

3.7. Derivative financial instruments and hedgings activities

Financial derivatives are measured at fair value at both initial recognition and subsequent

measurement. Resulting gains and losses are recognised depending on whether the derivative is

designated as a hedging instrument or not and, if so, the nature of the item being hedged.

For derivatives not qualifying for “hedge accounting”, any gains or losses in fair value are recognised

immediately in the income statement (Note 4.4). 3.8. Cash and cash equivalents

Cash and cash equivalents includes cash holdings, sight deposits with credit institutions, other short-

term highly liquid investments with original maturities of three months or less, and bank overdrafts.

3.9. Equity

Share capital consists on ordinary shares.

The cost of issuing new shares or options is charged directly against equity, as a reduction in

reserves.


16

In the event that the Company acquires treasury shares, the compensation paid including any

incremental cost that is directly attributable, is deducted from equity until the shares are eliminated,

issued again or otherwise disposed of. When treasury shares are subsequently sold or reissued, any

amount received is taken to equity net of directly attributable incremental costs.

3.10. Financial liabilities

Creditors and payables

This includes trade and non-trade payables. These payables are classed as current liabilities unless

the Company has an unconditional right to defer settlement for at least 12 months as from the balance

sheet date.

Payables are initially recognised at fair value, adjusted for directly attributable transaction costs, and

subsequently measured at amortised cost using the effective interest method. The effective interest

rate is the discount rate that brings the carrying value of the instrument into line with the expected flow

of forecast future payments to maturity of the liability.

Nonetheless, trade payables falling due in less than one year without a contractual interest rate are

carried at their face value at both initial recognition and subsequent measurement, provided that the

effect of not discounting flows is not significant.

3.11. Grants received

A grant that is repayable is recognised under liabilities until the conditions are fulfilled for the grants to

be treated as non-repayable. Outright grants are recognised directly in equity and are released to

income on a systematic and rational basis in line with grant costs.

To this end, a grant is considered to be non-repayable when there is an individual agreement

regarding its obtention and all of the conditions established for that grant have been met and there are

no reasonable doubts that the amount will be collected.

Monetary subsidies are stated at the fair value of the amount granted and non-monetary subsidies are

stated at the fair value of the asset received, both values refer to the moment of recognition.

Outright grants relating to the acquisition of property, plant and equipment, intangible assets and

investment property are recognised as income in the year in proportion to the depreciation of the

assets concerned or, if appropriate, when the assets are sold, adjusted for impairment or written off

from the balance sheet. Non-repayable subsidies relating to specific expenses are recognised in the

income statement in the same year in which the relevant expenses accrue together with those granted

to offset operating deficits during the year granted, except when they are used to offset operating

deficits in future years in which case they are attributed to those years.

Under this heading the Company recognises the amount of the discounting of loans granted mainly by

the Ministry of Education and Science, which accrue no interest (Note 18).


17

3.12. Current and deferred taxes

Income tax expense (income) is that amount of income tax that accrues during the period. It includes

both current and deferred tax expense (income).

Both current and deferred tax expense (income) is recognised in the income statement. However, the

tax effect of items recorded directly in equity is recognised in equity.

Current tax assets and liabilities are carried at the amounts that are expected to be payable to or

recoverable from the tax authorities, in accordance with prevailing legislation or regulations that have

been approved and are pending publication at the year end.

Deferred income tax is calculated, using the liability method, on temporary differences arising between

the tax bases of assets and liabilities and their carrying amounts. However, if the deferred taxes arise

from the initial recognition of a liability or an asset on a transaction other than a business combination

that at the time of the transaction has no effect on the tax or accounting gain or loss, they are not

recognised. The deferred tax is determined applying tax regulations and rates approved or about to be

approved at the balance sheet date and which are expected to be applied when the corresponding

deferred tax asset is realised or deferred tax liability is settled.

The Company pays corporate income tax under the corporate group taxation system together with the

companies making up the Group. Under this system, the taxable base is calculated based on the

Group's consolidated results.

Deferred tax assets are recognised insofar as future tax profits will probably arise against which to

offset the temporary differences.

3.13. Provision for liabilities and charges and other trade provisions

Provisions for post-sale costs, restructuring costs and legal claims are recognised when the Company

has a present legal or constructive obligation as a result of past events, an outflow of funds will

probably be necessary to settle the obligation, and the amount may be reliably estimated.

Restructuring provisions comprise lease termination penalties and employee termination payments.

Provisions are not recognised for future operating losses.

Provisions are carried at the present value of forecast payments that are expected to be required to

settle the obligation, using a rate before taxes that reflects the current market assessment of the time

value of money and the specific risks of the obligation. Adjustments to the provision deriving from

restatements are recognised as a financial expense as they accrue.

Provisions maturing in one year or less with no significant financial effect are not discounted.

When it is expected that a portion of the payment necessary to cancel the provision will be reimbursed

by a third party the reimbursement is recognised as an independent asset, provided that receipt of the

reimbursement is practically certain.


18

3.14. Employee benefits

a) Length-of-service awards and other employee commitments

The Company's Collective Agreement provides for awards for employees that complete 25 and 35

years of service with the Company, as well as other obligations towards employees. To measure these

obligations, the Company has applied its best estimates based on an actuarial study performed by an

independent third party in which the following assumptions have been applied: mortality table PERM/F

2000 P and a technical interest rate of 1.32% (2013: 2.30%)

b) Coal vouchers

The Company has commitments with certain serving and retired employees that belonged to its

discontinued coal activity for the monthly supply of a certain quantity of coal.

Annual coal allowances are calculated based on actuarial studies prepared by an independent actuary

and include the following assumptions: mortality tables PERM/F 2000P, technical interest rate of

1.32% p.a. (2012: 2.30%) and a rise in the consumer price index of 1% p.a. (2013: 2%)

c) Profit-sharing and bonus plans

The Company recognises a liability and an expense for bonuses and profit-sharing based on a formula

that takes into consideration the profit attributable to the Company’s shareholders after certain

adjustments. The Company recognises a provision when it is contractually obligated or when past

practice has generated a constructive obligation.

d) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date,

or whenever an employee accepts voluntary redundancy in exchange for these benefits. The

Company recognises termination benefits when it is demonstrably committed to either: terminating the

employment of current employees according to a detailed formal plan without possibility of withdrawal;

or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

Benefits not falling due within 12 months of the balance sheet date are discounted to present value.

3.15. Share-based payments

The Company operates a compensation plan involving share-based payments under which the

Company receives the employees' services as consideration in exchange for equity instruments.

Under the terms of the plan, grants are not irrevocable.

The goods and services received and the resulting increase in equity are measured directly at fair

value, unless such fair value cannot be reliably estimated. When the Company is unable to reliably

estimate the fair value of the goods or services received, their value and the relevant increase in

equity are measured indirectly by reference to the fair value of the equity instruments granted.


19

3.16. Joint ventures

The Company recognises the proportional part attributable to it of jointly-controlled assets and jointly-

incurred liabilities on the basis of the percentage interest held and the assets used in the joint

operation that are under its control and the liabilities incurred as a result of the joint venture.

Similarly, the income statement recognises the portion relating to the revenues generated and

expenses incurred on the joint venture. The expenses incurred in relation to the interest held in the

joint venture are also reflected.

Unrealised gains/losses on reciprocal transactions and the reciprocal amounts of assets, liabilities,

revenues, expenses and cash flows are eliminated in proportion to the interest held.

a) Accounting treatment of temporary consortium activities

Certain work is completed through the grouping of two or more companies as a temporary consortium.

At the year end the Company participates in several temporary consortia (Note 29.a) the balances of

which are included in the Company's accounting records in proportion to the interest held in them, in

accordance with generally accepted accounting principles.

In order to account for the profit /(loss) on the work carried out through temporary consortia with other

companies, the Company applies the same criterion it applies to its own work, as explained in revenue

recognition.

b) Inclusion of branches

The financial statements of the Company's branches in Mexico, Italy, Venezuela, Egypt and Peru,

named Duro Felguera S.A., Sucursal México, Duro Felguera S.A., Stabile Organizazione in Italia,

Felguera Parques y Minas Sucursal Venezuela, Duro Felguera Plantas Industriales, S.A., Sucursal

Egipto, Duro Felguera S.A., Sucursal Perú have been included in accordance with applicable

legislation, integrating all their balances and transactions.

3.17. Revenue recognition

Revenue comprises the fair value of the consideration receivable and represents amounts receivable

for goods delivered and services rendered in the ordinary course of the Company’s activities, net of

returns, rebates, discounts and VAT.

The Company recognises revenue when the amount may be reliably estimated, it is likely that the

future economic benefits will flow to the Company and the specific conditions for each activity are

fulfilled, as described below. A reliable calculation of the amount of revenue is not deemed possible

until all sale-related contingencies have been resolved. The Company’s estimates are based on

historical results, taking into account customer type, transaction type and specific terms.


20

a) Services rendered

Contract costs are recognised as an expense in the period in which they are incurred. When the

outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only

to the extent of costs incurred that are expected to be recoverable.

When the profit from any construction contract may be reliably estimated and it is likely that it will be

profitable, the revenues are recognised over the term of the agreement.

The revenue recognition method for turnkey engineering contracts varies based on the estimated

results.

When it is probable that the contract costs will exceed total contract revenues, the expected loss is

recognised immediately as an expense.

Changes in construction work are included in the contract revenues to the extent that: a) it is likely that

the customer will approve the amended plan and the amount of the ordinary income arising from the

change; and b) the amount involved in the change may be reliably measured.

Claims in construction work are included in contract revenue to the extent that: a) negotiations are at

an advanced stage and the customer is likely to accept the claim; and b) the amount that will probably

be accepted by the customer may be reliably measured.

Incentive payments are recorded in ordinary income derived from the contract when: a) the contract is

at a sufficiently advanced stage and it is likely that performance levels will be achieved or surpassed,

and b) the incentive payment may be reliably measured.

The Company uses the “percentage of completion method” to calculate the adequate amount to be

recorded in any certain period. The degree of completion is calculated by reference to the contract

costs incurred at the balance sheet date expressed as a percentage of the total estimated cost for

each contract. The costs incurred during the year with respect to future activities under a contract are

excluded from the agreement costs used to determine the percentage of completion.

The Company presents as an asset the gross amount owed by customers for all work performed

under current contracts for which the costs incurred plus recognised profits (less recognised losses)

exceed the amount of progress billings. Progress billings not yet paid by customers and withholdings

are included under Trade and other receivables.

The Company presents as a liability the gross amount owed by customers for all work performed

under current contracts for which the progress billings exceed the costs incurred plus recognised

profits (less recognised losses).

Costs related to the presentation of bids for construction contracts in Spain and abroad are expensed

in the income statement when incurred, when it is not likely or it cannot be ascertained that the

contract will be awarded to the Company. The cost of submitting bids is included in the cost of the

contract when it is likely or certain that the contract will be obtained, or when it is known that these

costs will be reimbursed or included in the revenues originating from the contract.


21

b) Interest income

Interest income is recognised using the effective interest rate method. When a receivable is impaired,

the Company reduces the carrying amount to its recoverable amount, this being the estimated future

cash flow discounted at the original effective interest rate of the instrument, and continues recording

the discount as interest income. Interest income on loans that have become impaired is recognised

using the effective interest rate method.

c) Income from dividends

Dividend income is recognised as income in the income statement at the time the right to receive the

dividends vests. Nonetheless, if the dividends paid derive from profits generated prior to the date of

acquisition, they are recognised as a decrease in the carrying value of the investment and not as

income.

3.18. Leases

a) When the Company is the lessee – Finance lease

The Company leases certain property, plant and equipment. Leases of property, plant and equipment

where the Company holds substantially all the risks and rewards of ownership are classed as finance

leases. Finance leases are capitalised at inception at the lower of the fair value of the leased property

and the present value of the minimum lease payments. Present value is calculated using the interest

rate implicit in the lease agreement and, if this rate cannot be determined, the interest rate applied by

the Company on similar transactions.

Each lease payment is distributed between the liability and financial charges. The total financial

charge is apportioned over the lease term and taken to the income statement in the period of accrual,

using the effective interest rate method. Contingent instalments are expensed in the year they are

incurred. Lease obligations, net of financial charges, are recognised in “Finance lease creditors”. Fixed

assets acquired under finance lease are depreciated over their useful lives.

b) When the Company is the lessee – Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor

are classified as operating leases. Operating lease payments (net of any incentive received by the

lessor) are charged against the income statement for the year in which they accrue on a straight- line

basis over the lease period.

c) When the Company is the lessor

When assets are leased under operating leases, they are carried on the balance sheet by nature.

Lease income is recognised on a straight-line basis over the lease period.


22

3.19. Foreign currency transactions

a) Functional and presentation currency

The annual accounts are presented in euro, which is the Company’s functional and presentation

currency.

b) Transactions and balances

Foreign currency transactions are translated to the functional currency using the exchange rates

prevailing at the transaction dates. Foreign exchange gains and losses resulting from the settlement of

these transactions and translation at the year-end exchange rates of monetary assets and liabilities

denominated in foreign currency are recognised in the income statement, unless they are deferred in

equity as cash flow hedges.

Translation differences on non-monetary items such as equity instruments held at fair value through

profit or loss are presented as part of the fair value gain or loss. Translation differences on non-

monetary items, such as equity instruments classified as available-for-sale financial assets, are

included in equity.

c) Hyperinflationary economies

The Company wholly owns subsidiaries and branches domiciled in Venezuela whose only purpose is

to implement the local part of global projects managed from Spain and mostly developed by other

Spanish subsidiaries. Company management considers the euro as the functional currency of these

subsidiaries and branches, for the following reasons:

- The costs and selling prices of works performed by the Venezuelan subsidiaries and branches

are all in bolivar.

- Selling prices and costs denominated in bolivar represent an insignificant percentage of the

total amount of overall projects. The selling price is determined jointly and the part in bolivars

is calculated based on the amount needed to cover the costs to be incurred in that currency

with a minimal margin.

- Financing in Venezuela represents a residual percentage of the total selling price of projects

and therefore is not significant with respect to the reporting company.

- The currency in which revenues from operating activities are recorded is primarily the euro

because, as indicated in the previous point, the portion denominated in bolivar has a reduced

margin and remaining cash denominated in bolivar is insignificant.

- Business activities abroad are carried out as an extension of the reporting company.

Integrated management of the projects is performed from Spain, review, management and

decision-making takes place in Spain, and the subsidiaries/branches in Venezuela act as

reporting vehicles for the Company.

- The cash flows from business activities in Venezuela are sufficient to cover projects in

Venezuela, leaving a minimum margin. It is not necessary to send funds from Spain in this

respect, therefore the cash flows of the reporting company are not affected.

On the basis of the foregoing, no adjustments are made for hyperinflationary economies in the

financial statements of these Venezuelan subsidiaries and branches as their functional currency does

not pertain to a hyperinflationary economy.


23

The net exposure of ongoing projects in Venezuela to the Venezuelan bolivar at 31 December 2014 is

€ -0.2 million (2013: €5.8 million).

3.20. Related party transactions

In general, transactions between Group companies are initially recognised at fair value. If applicable,

where the agreed price differs from fair value, the difference is recognised based on the economic

reality of the transaction. Subsequent measurement is made in line with the relevant accounting

standards.

4. Financial risk management

4.1 Financial risk factors

a) Market risk

(i) Exchange rate risk

The Company operates in the international area and therefore it is exposed to foreign

exchange risks on transactions denominated in foreign currency, particularly Venezuelan

bolivars and US dollars (USD) and, to a lesser extent other local currencies. Currently, the

most important is the Venezuelan bolivar. Exchange rate risk arises from future commercial

transactions, recognised assets and liabilities and net investments in foreign operations.

To control the foreign currency risk that arises from future commercial transactions and

recognised assets and liabilities, the Company uses various methods:

- Most contracts are "multi-currency", breaking down the selling price in the various

currencies of the expected costs and maintaining expected margins in euro.

- Financing of working capital relating to each project is denominated in the currency of

receipt.

- For any amounts not covered by the above arrangements, exchange insurance or

forward contracts are concluded in line with the relevant terms; decision-making on

hedges is centralised in Group financial management.

Foreign exchange risk arises when the future transactions and recognised assets and

liabilities are denominated in a currency other than the Company’s functional currency. The

Company's risk management policy is to cover between 60% and 80% of transactions

envisaged over the life of each project. However, the operating units are responsible for taking

decisions on hedges using external foreign currency forwards, in which they are assisted by

the Group's Treasury Department.


24

At 31 December 2014, if the euro had weakened by 5% against the US dollar with all other

variables held constant, post-tax profit for the year would have been €4,019 thousand higher

(2013: €2,042 thousand), and in the event of a 5% increment profit would have been reduced

by €4,442 thousand (2013: €1,837 thousand), mainly as a result of gains/losses on foreign

exchange currency conversion to U.S. dollars of trade and other receivables, cash advances

to suppliers and customer prepayments as well as the impact on the final outcome of projects

of the amounts of future revenues and expenses in US dollars, and the effect of the degree of

progress at year end.

(ii) Price risk

Projects that last two or more years initially involve a contract price risk, due to the effect of

the increase in costs to be contracted particularly when operating in the international market in

economies with high inflation rates.

In order to minimise the effect of future cost increases for these reasons, the Company

includes a scaled price review clause in contracts of this kind pegged to consumer price

indices, as in the case of its contract in Venezuela for the Ferrominera del Orinoco Plant.

Since the commencement of the projects to 31 December 2014, income from the projects in

question have risen by €98 million (2013: €98 million) as a result of the price reviews linked to

consumer price indices, also impacting the costs of these projects.

At other times the prices of contracts or associated subcontracts are denominated in stronger

currencies (USD) payable in local currency at the rate ruling on the collection date, with these

conditions being passed on to subcontractors.

(iii) Cash flow interest rate risk and fair value risk

Since the Company does not hold any significant interest-bearing assets, the revenues and

cash flows from the Company's operating activities are largely unaffected by changes in

market interest rates.

Interest rate risk results from long-term borrowings. Loans issued at variable rates expose the

Company to cash flow interest rate risk, which is partially offset by cash held at variable rates.

The Company analyses its exposure to interest rates in a dynamic manner. Various scenarios

are simulated, taking into account refinancing, renewal of existing positions, and

financing/hedging alternatives. Based on these scenarios the Group calculates the effect on

earnings of a certain variation in the interest rate. For each simulation, the same variation in

interest rates is used for all currencies. The scenarios are used only for liabilities representing

the most significant positions subject to interest rate risk.


25

According to the simulations performed, the impact on earnings of a variation of 10 basis points in the

interest rate would entail an increase/decrease of €39 thousand (2013: +/- €95 thousand). Due to

negative leveraging, it should be noted that a rise in interest rates would entail a higher profit for the

Group.

b) Credit risk

Credit risk is managed by the Company by grouping financial assets as follows:

- Assets arising from derivatives (Note 12) and sundry balances included in cash and cash

equivalents (Note 14).

- Trade and other receivable balances (Note 11).

Financial derivatives and operations with financial institutions included as Cash and cash equivalents

are arranged with prestigious financial institutions. In addition, the Company has policies in place to

limit the amount of risk held with respect to any financial institution.

In relation to Trade and other receivables it is worth noting that, due to the nature of the business,

counterparties are concentrated depending on the Group’s most important projects. These

counterparties are mostly state or multinational corporations operating in the mining and energy

industries.

The Company's main customers make up 87% of Trade receivables at 31 December 2014 (2013:

89%) and involve operations with the kind of institutions referred to above, for which reason the

Company considers that credit risk is very limited. In addition to the analysis performed before entering

into a contract, the global position of Trade and other receivables is monitored on an ongoing basis,

while the most significant exposures (including of the type of entities mentioned earlier) are monitored

at the individual level.

The balance in trade accounts due but not impaired at 31 December 2014 is €166,457 thousand

(2013: €197,261 thousand).

c) Liquidity risk

The prudent management of liquidity risk entails maintaining sufficient cash and marketable securities,

ensuring available funding in the form of sufficient committed credit facilities and the ability to monetise

market positions. Given the dynamic nature of the underlying businesses, the Company’s finance

management aims to maintain flexible financing through available credit facilities.

Management carries out a follow-up of the Company’s liquidity reserve forecasts on the basis of

expected cash flows. Due to the self-financing objective of the projects, the net treasury positions are

positive. Additionally, the Company has credit lines that offer an additional liquidity cushion. The

Company’s liquidity risk is therefore regarded as low. Set out below is a breakdown of relevant

information concerning liquidity:


26

2014 2013

Borrowings and derivatives (Notes 12 and 18) (161,810) (113,884)

Less: Cash and cash equivalents (Note 14) 190,831 236,202

Net cash balance 29,021 122,318

Undrawn credit facilities (Note 18) 119,000 54,041

Total liquidity reserves 148,021 176,359

In addition, as mentioned in Note 4.2, the Company's leverage ratio is lower than 1 for both 2014 and

2013. The Company therefore does not have any short-term liquidity risk.

4.2 Capital risk management

The Company’s capital management objectives are to safeguard its ability to continue as a going

concern to obtain a return for its shareholders and profits for other equity holders and ensure an

optimal capital structure and reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company could adjust the amount of the

dividends payable to shareholders, reimburse capital to shareholders, issue new shares or sell shares

to reduce debt.

The Company monitors capital in line with the leverage ratio, in accordance with current practice in the

industry. This ratio is calculated as net debt/net cash position divided by total capital. Net debt is

calculated as total debt (including current and non-current borrowings as shown in the balance sheet)

less cash and cash equivalents. Total capital is calculated as equity as shown in the annual accounts

plus net debt.

The Company's strategy consists of maintaining a leverage ratio of less than 1. The leverage ratios at

31 December 2014 and 2013 were as follows:

Thousand euro

2014 2013

Borrowings and derivatives (Notes 12 and 18) (161,810) (113,884)

Less: Cash and cash equivalents 190,831 236,202

Net cash balance 29,021 122,318

Equity 185,681 179,779

% Borrowings and derivatives/Equity 87.14% 63.35%

% Net cash position/Equity 15.63% 68.04%

4.3 Fair value estimation

The fair value of financial instruments traded in active markets (such as securities held for trading and

available-for-sale securities) is based on quoted market prices at the balance sheet date. The share

price that is used for financial assets is the current buying price.


27

The fair value of financial instruments that are not traded in an active market is determined using

valuation techniques. The Company uses a variety of methods and develops assumptions that are

based on market conditions existing at each balance sheet date. For long-term debt, market prices or

agent quotes are used. Other techniques, such as estimated discounted cash flows, are used to

determine fair value for the remaining financial instruments. The fair value of interest rate swaps is

calculated as the present value of the estimated future cash flows. The fair value of forward foreign

exchange contracts is determined using quoted forward exchange rates at the balance sheet date.

It is assumed that the carrying value less the provision for impairment of accounts receivable and

payable approximates fair value. The fair value of financial liabilities for reporting purposes is

calculated by discounting the future contractual cash flows at the current market interest rate to which

the Company has access for similar financial instruments.

4.4 Accounting for derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are

subsequently restated at their fair value. The method of recognising the resulting gain or loss depends

on whether the derivative is designated as a hedging instrument, and if so, the nature of the item

being hedged. The Company designates certain derivatives as:

(i) Hedges of the fair value of recognised assets and liabilities or a firm commitment (fair value

hedging);

(ii) Hedges of expected transactions (cash flow hedging), or

(iii) Hedges of a net investment in foreign operations.

At hedge inception, the Company documents the relationship between hedging instruments and the

hedged items, in addition to its risk management objective and the strategy to be employed in each

hedge transaction. The Company also documents its assessment, both at hedge inception and on an

ongoing basis, of whether the financial instruments used in hedging transactions are highly effective in

offsetting changes in fair values or cash flows of hedged items.

a) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are

recorded in the income statement, together with any changes in the fair value of the hedged asset or

liability that are attributable to the hedged risk.

lf the hedge ceases to meet the criteria for hedge accounting, the adjustment in the carrying amount of

the hedged item for which the effective interest rate method was used is recognised as a loss or gain

during the period until its maturity.

b) Cash flow hedges

The efficient portion of changes in fair value of the derivatives designated and which are classed as

cash flow hedges are recognised in equity. The gain or loss relating to the inefficient part is recognised

immediately in the income statement.


28

Amounts accumulated in equity are recycled in the income statement in the periods when the hedged

item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However,

when the forecast transaction that is hedged results in the recognition of a non-financial asset (for

example, inventory) or a liability, the gains and losses previously deferred in equity are transferred

from equity and included in the initial measurement of the cost of the asset or liability.

When the hedging instrument matures or is sold or when a hedging arrangement ceases to qualify for

hedge accounting, the gains or losses accumulated in equity to that date remain in equity and are

taken to the income statement when the forecast transaction is recognised in the income statement.

However, if the transaction is no longer considered probable, the gains or losses accumulated in

equity are recognised immediately in the income statement.

When the forecast transaction is not expected to take place, the accumulated gain or loss in equity is

transferred immediately to the income statement.

c) Derivatives not qualifying for hedge accounting

Certain derivative instruments might not qualify for hedge accounting. In such cases, changes in the

fair value of any derivative instruments that do not qualify for hedge accounting are recognised

immediately in the income statement.

5. Business combinations

There have been no operations of this type in 2014.

On 26 February 2013 the directors of Duro Felguera S.A., Felguera Parques y Minas S.A.U, Duro

Felguera Plantas Industriales, S.A.U., and Felguera Grúas y Almacenaje, S.A.U. drew up and signed

a joint merger plan in compliance with the provisions of Law 3/2009 of 3 April 2009 on structural

changes in trading companies ("Structural Changes Law") and Article 226 et seq of the Mercantile

Registry Regulations.

The two phases of the merger plan are summarised below:

- Vertical merger of the companies Felguera Parques y Minas, S.A.U. and Felguera Grúas y

Almacenaje, S.A.U. (target companies) into Duro Felguera Plantas Industriales, S.A.U.

(acquiring company).

- Vertical merger of DFPI (target) into DFSA (acquirer).

Under the merger plan, the date as from which all the operations of the absorbed companies were

considered to be carried out by the acquiring company was 1 January 2013.

The merger resolution was published in the Mercantile Registry Official Gazette on 15 April 2013.

The mergers were approved by the Single Shareholder of the target companies and the shareholders,

in general meeting, of Duro Felguera S.A., pursuant to Article 40 of the Structural Changes Law. In

accordance with Article 49.1 of the Structural Changes Law, the operations were carried out without

any capital increase in the acquiring company, without mentions 2, 6, 9 and 10 of Article 31 of said

Law being included in the merger plan, and without an independent expert's report on the merger plan.


29

The present notes to the accounts include movements resulting from merger operations under

"Business combinations".

The target companies' balance sheets included in the merger plan were those closed at 31 December

2012, as follows:

Thousand euro

Fair value

DFPI FPM FGA Total

Intangible assets 17 - - 17

Property, plant and equipment 637 247 4 888

Investment properties 2,074 - - 2,074

Long-term investments in Group companies and associates 12,325 - - 12,325

Long-term financial investments - 21 - 21

Deferred tax assets 4,720 885 81 5,686

Inventories 468 4,929 - 5,397

Trade and other receivables 21,611 10,547 35 32,193

Short-term investments in Group companies and associates 112,603 15,400 1,329 129,332

Short-term financial investments 63 4,236 1 4,300

Cash and cash equivalents 33,491 33,857 470 67,818

Long-term provisions (369) (18) (172) (559)

Long-term payables (1,477) - - (1,477)

Deferred tax liabilities (106) - (46) (152)

Short- term provisions (9,491) (237) - (9,728)

Short-term payables (13,224) (5,010) - (18,234)

Short-term payables to Group companies and associates (6,695) (96) (114) (6,905)

Trade and other payables (134,376) (60,553) (382) (195,311)

Identifiable net assets acquired 22,271 4,208 1,206 27,685

On 31 October 2013, Duro Felguera, S.A. acquired an interest in Epicom, S.A., a company engaging

in the manufacture and design of high-security equipment and cryptographic systems for secure

communications.

As a result of the operation, the Group hopes to strengthen its activities in the communications and

control area carried out by its subsidiary Núcleo de Comunicaciones y Control.

Duro Felguera acquired 100% of the company's capital. The investment made by Duro Felguera

totalled €4,635 thousand.

The investment is analysed in the following table, together with the assets and liabilities acquired at

the acquisition date:


30

Amounts recognised for identifiable assets and liabilities received Fair value

Cash and cash equivalents 14 Property, plant and equipment 178 Intangible assets: 1,397 - R&D 1,396 - Other 1 Financial Investments 2,221 Inventories 1,091 Trade and other receivables 363 Trade and other payables (1,511) Other liabilities (30) Borrowings (2,437) Deferred tax assets and liabilities, net 63

Identifiable net assets acquired 1,349

Goodwill 3,286

Costs related to the acquisition totalled €38 thousand and were charged to Operating expenses on the

income statement at 31 December 2013.

The goodwill is attributable to the profitability and consolidated situation of Epicom, S.A. in the market,

which may not be recognised separately as an intangible asset.

Ordinary income included on the income statement from 31 October 2013 to 31 December 2013 and

contributed by Epicom, S.A. amounted to €2,792 thousand. It also contributed a profit of €834

thousand for that period.

If the date of the acquisition had been 1 January 2013, the ordinary income and profits of Epicom, S.A.

included in the consolidated income statement at 31 December 2013 would have amounted to €3,299

thousand and €867 thousand, respectively.

There have been no changes in the business combination recorded at 31 December 2013, following

the price allocation review period of one year.


31

6. Intangible assets

Set out below is an analysis and movements in the accounts recorded under Intangible assets:

Thousand euro

Computer software

Other fixed assets in course

Total

Balance at 01 January 2013 277 3,566 3,843

Cost 2,013 3,566 5,579 Accumulated amortisation (1,736) - (1,736)

Carrying value 277 3,566 3,843 Additions due to business combinations (Note 5) 676 - 676 Additions 268 4,407 4,675 Amortisation due to business combinations (Note 5) (659) - (659) Amortisation charge (143) - (143)

Balance at 31 December 2013 419 7,973 8,392


Carrying value 419 7,973 8,392

Balance at 01 January 2014 419 7,973 8,392


Carrying value 419 7,973 8,392 Additions 266 785 1,051 Other movements 17 - 17 Amortisation charge (147) - (147) Other amortisation movement (16) - (16)

Balance at 31 December 2014 539 8,758 9,297


Carrying value 539 8,758 9,297

a) Fully-amortised intangible assets

At 31 December 2014 fully amortised intangible assets with a carrying value of €2,431 thousand are

still in use (2013: €2,338 thousand).

b) Fixed assets in course of construction

The heading “Other fixed assets in course of construction” reflects the costs incurred in the

development of the new IT system.


32

7. Property, plant and equipment

Set out below is an analysis of Property, plant and equipment showing movements:

Thousand euro

Land and

buildings

Plant and

machinery

Fixtures,

fittings, tools

and

equipment

Other

property,

plant and

equipment

Fixed assets

in course of

construction

and advance

payments

Total

Balance at 01 January 2013 13,219 573 3,480 1,248 - 18,520

Cost 14,587 778 5,308 3,195 - 23,868

Accumulated depreciation (1,368) (205) (1,828) (1,947) - (5,348)

Carrying value 13,219 573 3,480 1,248 - 18,520

Additions due to business

combinations (Note 5) 23 - 1,082 1,082 -

2,187

Additions 11 - 31 484 - 526

Transfers (22) - (28) 50 - -

Disposals - - - (227) - (227)

Depreciation due to business

combinations (Note 5) (1) - (425) (873) -

(1,299)

Depreciation charge (252) (27) (231) (602) - (1,112)

Write-offs - - - 227 - 227

Balance at 31 December 2013 12,978 546 3,909 1,389 - 18,822

Cost 14,599 778 6,393 4,584 - 26,354


Carrying value 12,978 546 3,909 1,389 - 18,822

Balance at 01 January 2014 12,978 546 3,909 1,389 - 18,822

Cost 14,599 778 6,393 4,584 - 26,354


Carrying value 12,978 546 3,909 1,389 - 18,822

Additions - - 31 536 23,572 24,139

Transfers (2) 670 (516) (237) - (85)

Depreciation charge (252) (54) (307) (476) - (1,089)

Other depreciation movements 1 (134) (227) 184

-

(176)

Balance at 31 December

2014 12,725 1,028 2,890 1,396

23,572

41,611

Cost 14,597 1,448 5,908 4,883 23,572 50,408


Carrying value 12,725 1,028 2,890 1,396 23,572 41,611

a) Additions

Fixed assets in course of construction for 2014 mainly includes the acquisition of the new building in

Madrid for €20,260 thousand and the investments to extend the Gijón Science and Technology Park

building amounting to €1,954 thousand. The main additions in 2013 related to the acquisition of a plot

at the Gijón Science and Technology Park and IT equipment.


33

b) Impairment losses

In 2014 and 2013 no significant impairment adjustments for any fixed assets have been recognised or

reversed.

c) Subsidised assets

The carrying value of assets covered by subsidies totals €11,779 thousand (2013: €13,032 thousand).

d) Fully-depreciated assets

At 31 December 2014, fully-depreciated property with an original cost of €256 thousand (2013: €107

thousand) is still in use. The cost of other fully-depreciated property, plant and equipment still in use

amounts to €3,375 thousand (2013: €3,576 thousand).

e) Assets under finance leases

“Land and buildings” includes the following amounts in respect of finance leases on buildings under

which the Company is the lessee:

Thousand euro

2014 2013

Capitalised finance lease cost 23,048 2,788

Accumulated depreciation (358) (308)

Carrying value 22,690 2,480

These amounts mainly include the lease for the acquisition of the new building in Madrid (Note 18)

amounting to €20,260 thousand with a purchase option of €206 thousand and land and buildings with

a carrying value of €2,430 thousand (2013: €2,478 thousand) relating to the finance lease operation

concluded on 2 August 2007 between Santander de Leasing, S.A., E.S.C. (lessor) and Duro Felguera,

S.A. (lessee) relating to various properties owned by the former (offices in c/ Rodríguez Sampedro, 5

de Gijón, and c/ González Besada, 25, c/ Marqués de Santa Cruz, 14 and c/ Santa Susana, 20, in

Oviedo) which had been leased prior to that date by Duro Felguera, S.A. from Hispamer Renting, S.A.

(former owner). At the date of termination of said finance lease on 2 August 2017, Duro Felguera, S.A.

intends to exercise the €1,448 thousand purchase option. The financial cost of this operation amounts

to €1,648 thousand (2013: €1,651 thousand) and includes the inception fee of 0.30% and a mark-up of

the annual Euribor +0.5%.

f) Assets under operating leases

The Company leases out installations and machinery under revocable operating lease agreements.

The Company is required to provide six months’ advance notice for the termination of these

agreements.

The heading Operating expenses on the income statement includes expenses for operating leases

amounting to €1,822 thousand (2013: €492 thousand).


34

g) Insurance

The Company has taken out a number of insurance policies to cover risks relating to property, plant

and equipment. The coverage provided by these policies is considered to be sufficient.

8. Investment properties

Thousand euro

2014 2013

Land 8,418 8,418

Buildings 6,970 7,014

15,388 15,432

Investment properties comprise land and buildings held for rent on a long-term basis and not occupied

by the Company.

Movements in investment properties are as follows:

Thousand euro

Land Buildings Total

Balance at 01 January 2013 8,314 5,282 13,596

Cost 8,314 6,537 14,851

Accumulated depreciation - (1,255) (1,255)

Carrying value 8,314 5,282 13,596

Additions due to business combinations

(Note 5) 104

4,131 4,235

Depreciation due to business

combinations (Note 5) -

(2,161) (2,161)

Depreciation - (238) (238)

Balance at 31 December 2013 8,418 7,014 15,432

Cost 8,418 10,668 19,086


Carrying value 8,418 7,014 15,432

Balance at 01 January 2014 8,418 7,014 15,432

Cost 8,418 10,668 19,086


Carrying value 8,418 7,014 15,432

Transfers - (60) (60)

Depreciation - (212) (212)

Other depreciation movements - 228 228

Balance at 31 December 2014 8,418 6,970 15,388

Cost 8,418 10,608 19,026


Carrying value 8,418 6,970 15,388


35

Investment properties mainly relate to land in the municipalities of Langreo, Oviedo and Gijón

(Asturias) and in Madrid, of which €0.4 million (2013: €0.4 million) relates to plots classified as

farmland located in the Langreo municipality. The remainder of the investments relate to buildings in

La Felguera amounting to €2.2 million (2013: €2.2 million, Oviedo amounting to €6.5 million (2013:

€6.6 million), Gijón with a value of €3.5 million (2013: €3.5 million) and Madrid, with a value of €2.8

million (2013: €2.8 million).

At year-end 2014 the fair value of these investments, as appraised by a professionally qualified

independent expert, amounted to €24,988 thousand (2013: €25,320 thousand).

a) Assets under finance leases:

Investment properties include the following amounts in respect of finance leases on buildings under

which the Company is the lessee:

Thousand euro

2014 2013




b) Assets under operating leases

Land and buildings includes buildings leased to third parties by the Company under an operating lease

with the following carrying value:

Thousand euro

2014 2013



Depreciation for the year (26) (26)


The expense recognised in the income statement during the year for contingent instalments under

operating leases amounts to €170 thousand (2013: €173 thousand).

c) Insurance

The Company has taken out a number of insurance policies to cover risks relating to investment

properties. The coverage provided by these policies is considered to be sufficient.

9. Analysis of financial instruments

9.1 Analysis by category

The carrying value of each category of financial instruments set out in the standard on accounting and

measurement of financial instruments, except for investments in the equity of Group companies,

jointly-controlled entities and associates (Note 10), is as follows:


36

FY 2013 Thousand euro

Long-term financial assets

Short-term financial

assets

Equity

instruments

Loans

Other

Loans

Other

TOTAL

Loans and receivables (Note 11) - 153 271,935 272,088

Derivatives (Note 12) - - 354 354

Assets available for sale at fair value 1,535 - - 1,535

Cash and cash equivalents (Note 14) - - 236,202 236,202

1,535 153 508,491 510,179

Loans and receivables do not include balances with public institutions.


Long-term financial assets


assets

Equity

instruments

Loans

Other

Loans

Other

TOTAL

Loans and receivables (Note 11) - 110 270,978 271,088

Assets available for sale at fair value 4,104 - - 4,104

Cash and cash equivalents (Note 14) - - 190,831 190,831

4,104 110 461,809 466,023

“Assets available for sale” include residual amounts of equity instruments in listed companies that

have generated zero gain/loss during the year (2013: €434 thousand gain).

Loans and receivables do not include balances with public institutions.


Long-term financial

liabilities


liabilities

Bank loans Other Bank loans Other TOTAL

Creditors and payables (Note 18) 71,048 9,272 42,748 318,153 441,221

Derivatives (Note 12) - 88 - - 88

71,048 9,360 42,748 318,153 441,309

Creditors and payables do not include balances with public institutions.


Long-term financial

liabilities


liabilities

Bank loans Other Bank loans Other TOTAL

Creditors and payables (Note 18) 152,705 8,801 7,769 243,713 412,988

Derivatives (Note 12) 1,120 216 1,336

152,705 9,921 7,769 243,929 414,324

Creditors and payables do not include balances with public institutions.

9.2 Analysis by maturities

Financial instruments (long term) having fixed or determinable maturities are shown below by year of

maturity:


37

Thousand euro

FY 2013 Financial assets

2014 2015 2016 2017

Subsequent

years Total

Loans and receivables (Note 11) 271,935 80 30 12 31 272,088

Derivatives (Note 12) 354 - - - - 354

Cash and cash equivalents (Note 14) 236,202 - - - - 236,202

508,491 80 30 12 31 508,644

Thousand euro

FY 2014 Financial assets

2015 2016 2017 2018

Subsequent

years Total

Loans and receivables (Note 11) 270,978 89 21 - - 271,088

Cash and cash equivalents (Note 14) 190,831 - - - - 190,831

461,809 89 21 - - 461,919

Thousand euro

FY 2013 Financial liabilities

2014 2015 2016 2017

Subsequent

years Total

Finance lease creditors (Note 18) 877 893 911 1,988 - 4,669

Bank loans (Note 18) 41,871 33,333 33,333 - 590 109,127

Derivatives (Note 12) - - - - 88 88

Other financial liabilities (Note 18) 318,153 3,826 826 826 3,794 327,425

360,901 38,052 35,070 2,814 4,472 441,309


38

Thousand euro

FY 2014 Financial liabilities

2015 2016 2017 2018

Subsequent

years Total

Finance lease creditors (Note 18) 1,814 2,330 3,453 1,515 14,940 24,052

Bank loans (Note 18) 5,955 5,096 15,096 15,096 95,179 136,422

Derivatives (Note 12) 216 662 371 87 1,336

Other financial liabilities (Note 18) 243,713 4,048 1,005 892 2,856 252,514

251,698 12,136 19,925 17,503 113,062 414,324

9.3 Credit quality of financial assets

The credit quality of the financial assets that have not yet matured and are not subject to impairment

losses may be evaluated based on the credit rating granted by external organisations or through an

analysis of past defaults. In this respect, it should be noted that there are no significant incidents

affecting financial assets, other than impaired balances, for which provision should be made.

When the decision is taken to request a credit rating of an existing customer, the Company's policy is

usually to entrust the report to Standard & Poor’s, Moody’s or Fitch Ratings.

Most of the Company's financial assets relate to customers that have never defaulted.

10. Investments in Group companies, jointly-controlled entities and associates

Investments in Group companies and associates

The breakdown of movements during the year in shareholdings in Group companies and associates is

as follows:


39

Thousand euro

Opening balance

Business

combinations

Additions and

transfers Disposals

Closing balance

FY 2013 Investments in Group companies Shareholdings in Group companies 115,432 (23,181) 4,666 - 96,917

Uncalled capital, Group companies (78)

-

- 78 - Impairment of investments in Group companies (15,827)

-

(14,322) 2,357 (27,792)

99,527

69,125

Investments in associates Shareholdings 2,773 7 - - 2,780 Uncalled capital, associates - (4) - - (4) Impairment of investments in associates (33)

(2)

- - (35)

2,740 2,741

102,267 71,866

Opening balance

Additions and transfers Disposals

Closing balance

FY 2014 Investments in Group companies Shareholdings in Group companies 96,917 8,568 - 105,485 Uncalled capital, Group companies - Impairment of investments in Group companies (27,792)

(2,116) 3,825 (26,083)

69,125

79,402

Investments in associates Shareholdings 2,780 - - 2,780 Uncalled capital, associates (4) - - (4) Impairment of investments in associates (35) (915) - (950)

2,741 1,826

71,866 81,228

The main additions in investments in Group companies for 2014 relate to capital contributions to

Nucleo de Comunicación y Control, S.L., Duro Felguera Oil&Gas, S.A. and Felguera Gruas India, Pvt.

The main additions in investments in Group companies for 2013 relate to the acquisition of 100% of

Epicom, S.A. for €4,635 thousand.


40

A list of Group companies and associates with information relating to them is set out in the following

table:

FY 2013

% shareholding

Name and legal structure Activity and domicile Direct % Indirect %

Group:

Montajes de Maquinaria de Precisión, S.A.U

Assembly and maintenance of turbines (Gijón)

100% -

Felguera I.H.I., S.A. Fuel and gas storage equipment (Madrid)

60% -

Duro Felguera Investment, S.A.U Investment services (La Felguera) 100% - Eólica del Principado, S.A.U. Renewable energy (Oviedo) 60% - Turbogeneradores del Perú, S.A.C.

Construction and assembly of industrial projects (Peru)

90% 10%

Proyectos e Ingeniería Pycor, S.A. de CV

Engineering (Mexico) 99.8% -

Duro Felguera Oil&Gas, S.A. Mining equipment engineering (Langreo)

100% -

Eolian Park Management, S.A. Renewable energy (Romania) 80% -

Felguera Diavaz Proyectos México , S.A. de C.V.

Wind energy and cogeneration (Mexico)

50% -

Duro Felguera Do Brasil, Ltda Commercial project development (Brazil)

100% -

Turbogeneradores de Venezuela, C.A.

Construction and assembly of industrial projects (Venezuela)

- 100%

Felguera Rail, S.A. Railway equipment manufacture and assembly (Mieres)

- 100%

Pontonas del Musel, S.A. Shipping business (Gijón) - 70%


41

FY 2013

% shareholding


Felguera Melt, S.A.U

Smelting (La Felguera) -

100%

Técnicas de Entibación, S.A.U. Shoring material manufacture (Llanera) - 100%

Felguera Calderería Pesada, S.A.U.

Pressure vessels and heavy boiler making (Gijón) - 100%

Felguera Construcciones Mecánicas, S.A.U.

Mechanical equipment production (Langreo) - 100%

Felguera IHI Panamá, S.A. Fuel and gas storage equipment (Panama) - 60%

Felguera Tecnología de la Información, S.A.

Management software development (Llanera) - 60%

Equipamientos Construcciones y Montajes, S.A. de C.V.

Construction and assembly of industrial projects (Mexico) 100% -

Felguera Gruas India Private Limited

Port terminals (India) 80% 20%

Duro Felguera Industrial Projects Consulting Co.Ltd

Industrial engineering project consulting (China) 100% -

Duro Felguera Operaciones y Montajes, S.A.U

Thermal plant start-up, operation and maintenance (Gijón) 100% -

Duro Felguera Argentina S.A Construction, maintenance and supply

of equipment for power stations (Argentina) - 100%

Opemasa Andina Ltda Construction, maintenance and supply of equipment for power stations (Chile) - 100%

Mompre, Montajes de Precisión De Venezuela C.A

Assembly of turbo-generators and auxiliary equipment in power stations (Venezuela) - 100%

DF Ingeniería Técnica de Proyectos y Sistemas, S.A.U

Promotion, management, development, maintenance, operation, exploitation and in general any kind of activity related to energy production through the full or partial use of renewable primary energy sources 100% -

Núcleo de Comunicaciones y Control, S.L.U.

Engineering projects, including necessary civil engineering works (Madrid) 100% -

Duro Felguera UK Limited Engineering, supplies and civil works for energy projects (UK) 100% -


42

FY 2013

% shareholding


PT Duro Felguera Indonesia Engineering, supply and construction projects for the mining, energy and industrial sectors. (Indonesia). 95% -

Duro Felguera Australia Pty Ltd. Capital goods (Australia) 100% - EPICOM, S.A. Research, development, manufacture,

marketing, technical assistance, study and consulting in relation to equipment, electronic systems and software (Madrid) 100% -

Duro Felguera Panamá, S.A. Commercial project development (Panama) 100% -

Duro Felguera Middle East General Contracting LLC

General contracting for on-shore oil & gas and field services (UAE) 49% -

FY 2013 Associates

% shareholding


Zoreda Internacional, S.A. (4) Environment (Gijón) 32% 8% Ingeniería EIA XXI,S.A. Engineering and consulting services

(Bilbao) 35% - Sociedad de Servicios Energéticos Iberoamericanos

Electricity generation plant assembly and maintenance (Colombia) 25% -

Secicar S.A Fuel sale (Granada) - 17.69% Petróleos Asturianos, S.L. Storage and distribution of fossil-fuel

products (Gijón) - 19.8% Conaid Company S.R.L. Electricity production, transport and

distribution (Romania). 47% - MDF Tecnogás, S.A. Research, manufacture and

marketing of all types of fuels and products from biomass and waste, and electricity generation under the Special Regime (Madrid) 50% -

Operación y Mantenimiento Solar Power S.L.

Operation and maintenance services for industrial plants producing electricity from solar technology. - 40%


43

FY 2014

% shareholding


Group:

Duro Felguera Investment, S.A.U Investment services (La Felguera) 100% - Duro Felguera Rail, S.A. Railway equipment manufacture and

assembly (Mieres) - 100% Duro Felguera Calderería Pesada, S.A.U.

Pressure vessels and heavy boiler making (Gijón) - 100%

Pontonas del Musel, S.A. Shipping business (Gijón) - 70%

DF Técnicas de Entibación, S.A.U. Shoring material manufacture (Llanera) - 100%

Duro Felguera Operaciones y Montajes, S.A.U

Study, marketing and implementation of all kinds of services and supplies, maintenance and operation of industrial plants, machinery and equipment for industrial plants. Commissioning of facilities (Gijón) 100% -

DF Mompresa, S.A.U.

Assembly and maintenance of turbines (Gijón) 100% -

Duro Felguera Oil&Gas, S.A. Creation, design, calculation, basic engineering, detailed engineering, management, planning, computerisation, coordination, monitoring and control of projects in the oil, gas and petrochemical industry (Madrid) 100% -

DF Ingeniería Técnica de Proyectos y Sistemas, S.A.U

Promotion, management, development, maintenance, operation, exploitation and in general any kind of activity related to energy production through the full or partial use of renewable primary energy sources (Gijón) 100% -

Núcleo de Comunicaciones y Control, S.L. U.

Engineering projects, including necessary civil engineering works (Madrid) 100% -

Epicom, S.A. Research, development, manufacture, marketing, technical assistance, study and consulting in relation to equipment, electronic systems and software (Madrid) 100% -

Felguera I.H.I., S.A. Fuel and gas storage equipment (Madrid) 60% -

Felguera Tecnología de la Información, S.A.

Management software development (Llanera) 60% -

Eólica del Principado, S.A.U. Renewable energy (Oviedo) 60% - Turbogeneradores del Perú, S.A.C.

Construction and assembly of industrial projects (Peru) 90% 10%


44

FY 2014

% shareholding


Group:

Duro Felguera Argentina, S.A Construction, maintenance and

supply of equipment for power stations (Argentina) - 100%

Opemasa Andina Ltda Construction, maintenance and supply of equipment for power stations (Chile) - 100%

Mopre Montajes de Precisión de Venezuela, S.A

Assembly of turbo-generators and auxiliary equipment in power stations (Venezuela) - 100%

Turbogeneradores de Venezuela, C.A.

Construction and assembly of industrial projects (Venezuela) - 100%

Equipamientos Construcciones y Montajes, S.A. de C.V.

Construction and assembly of industrial projects (Mexico) 100% -

Proyectos e Ingeniería Pycor, S.A. de C.V.

Engineering (Mexico) 99.8% 0.2%

Felguera Diavaz Proyectos México, S.A. de C.V.

Wind energy and cogeneration (Mexico) 50% -

Duro Felguera UK Limited Engineering, supplies and civil works for energy projects (UK) 100% -

Felguera Gruas India Private Limited

Port terminals (India) 99.65% 0.35%

Duro Felguera Industrial Projects Consulting Co.Ltd

Industrial engineering project consulting (China) 100% -

Eolian Park Management, S.A. Renewable energy (Romania) 80% - PT Duro Felguera Indonesia Engineering, supply and construction

projects for the mining, energy and industrial sectors (Indonesia) 95% -

Duro Felguera Australia Pty Ltd.. Capital goods engineering (Australia) 100% - Duro Felguera Panamá, S.A. Engineering, supplies and civil works

for energy projects (Panama) 100% Duro Felguera Saudí LLC Construction of electricity generation

buildings and plants (Saudi Arabia) 95% 5% Duro Felguera Middle East General Contracting LLC

General contracting for on-shore oil & gas facilities and field services (Abu Dhabi) 100% -

Duro Felguera Gulf Contracting LLC

Construction of electricity generation plants (Dubai) 100% -


45

FY 2014 % shareholding

Name Activity and domicile Direct % Indirect %

Group:

Felguera IHI Panamá, S.A. Design, development, manufacture,

integration, marketing, representation, installation and maintenance of air-conditioning and mechanical electrical and electronic systems, equipment and sub-assemblies, and the implementation of engineering projects, including necessary civil engineering work (Panama) - 60%

FY 2014

% shareholding


Associates: Zoreda Internacional, S.A. (4) Environment (Gijón) 32% 8% Ingeniería EIA XXI,S.A. Engineering and consulting services

(Bilbao) 35% - Sociedad de Servicios Energéticos Iberoamericanos

Electricity generation plant assembly and maintenance (Colombia) 25% -

Secicar S.A Fuel sale (Granada) - 17.69% Petróleos Asturianos, S.L. Storage and distribution of fossil-fuel

products (Gijón) - 19.8% Conaid Company S.R.L. Electricity production, transport and

distribution (Romania) 47% - MDF Tecnogás, S.A. Research, manufacture and

marketing of all types of fuels and products from biomass and waste, and electricity generation under the Special Regime (Madrid) 50% -

Operación y Mantenimiento Solar Power S.L.

Operation and maintenance services for industrial plants producing electricity from solar technology (Madrid) - 40%


46

During 2014 a full spin-off was carried out of Felguera Construcciones Mecánicas, S.A.U. through the

division and transfer of its assets and liabilities to Duro Felguera Investment, S.A.U. and Duro

Felguera Calderería Pesada, S.A.U. The full spin-off was also carried out of Felguera Melt, S.A.U.

through the division and transfer of its assets and liabilities to Duro Felguera Investment, S.A.U. and

Duro Felguera Rail, S.A.U.

Group companies and associates are analysed below, detailing figures for capital, reserves, results for

the year and other key information derived from their individual annual accounts:


47


Equity

Company Capital Reserves Other

items (1)

Operating

results Profit/(loss) for the year

Carrying value

in parent company

Uncalled amounts on shares held

Appropriation/application/

transfer in the year

Accumulated provision in

parent

Group: Direct holding (2) Núcleo de Comunicaciones y Control S.L.U. (3) 4,000 (23,602) 28,980 (8,133) (5,174) 32,980 - (13,215) (20,779) PT Duro Felguera Indonesia 477 56 - 161 195 477 - - - Montajes de Maquinaria de Precisión, S.A.U. (3) 2,736 4,300 (7,000) 7,834 8,640 3,221 - - - Felguera I.H.I., S.A. (3) 2,104 29,229 - 6,669 4,451 1,566 Duro Felguera Investment, S.A.U. 23,468 6,187 2,843 (7) 1,964 38,206 - 2,341 (3,745) Eólica del Principado, S.A.U (7) 90 (41) - - - 54 - - (25) Turbogeneradores del Perú, S.A.C. 9 1,572 - 1,282 934 8 - - - Duro Felguera Industrial Projects (7) 140 (27) - 22 21 140 - 16 (20) Oil & Gas S.A.U. 3,000 (375) - (1,469) (1,026) 4,322 - (1,026) (2,724) Proyectos e Ingeniería Pycor, S.A. de CV 481 (525) - 39 31 9 - - (9) Felguera Diavaz Proyectos México, S.A. 3 (591) - - (3) 1 - - (1) Duro Felguera Do Brasil 91 5,311 - 1,214 868 90 - - - Eolian Park Management, S.A (7) 500 (408) - (1) (19) 400 - (15) (382) DF Ingeniería Técnica de Proyectos y Sistemas, S.A.U (7) 80 (36) - (19) (16) 80 - (16) (53) Duro Felguera Operación y Montajes, S.A.U. (3) 120 11,054 (6,000) 9,797 7,881 10,485 - - - Epicom, S.A. 217 1,133 - 1,105 834 4,636 - - - Felguera Tecnología de la Información, S.A (7) 90 972 142 8 71 176 - - - Felguera Gruas India Private Limited 15 (208) - 927 285 12 - - - DF Middle East General Contracting LLC (7) 30 - - (42) (42) 30 - (30) (30) Duro Felguera UK Limited 24 1 - 61 (20) 24 - (20) (24) Duro Felguera Australia Pty Ltd. - - - 4,154 3,777 - - - - Duro Felguera Panamá, S.A. (4) (7) - - - - - - - - -

(1) These data mainly reflect interim dividends paid during the year, share premiums and other shareholder contributions. (2) Consolidated data included in direct shareholding. (3) The Company participates directly and indirectly in temporary consortium activities which are included in the companies' accounts based on their percentage interest. (4) Dormant. (5) In liquidation. (6) Audited by a firm of auditors differing from the Company's auditors. (7) Unaudited.


48


Equity


items (1)

Operating


Carrying value

in parent company





parent

Indirect holding Felguera Rail, S.A. 7,997 823 - (205) (150) - - - - Pontonas del Musel, S.A (7) 510 116 - (16) (4) - - - - Felguera Melt, S.A.U. 13,898 4,624 (6,482) (4,203) - - - - Técnicas de Entibación, S.A.U. 3,936 1,941 - (526) (409) - - - - Felguera Calderería Pesada, S.A.U. 9,843 2,347 (676) 4,193 3,218 - - - - Felguera Construcciones Mecánicas, S.A.U. 500 (1,180) 2,600 (1,350) (987) - - - - Equipamientos Construcciones y Montajes, S.A. de C.V 5,283 (4,103) - 1,390 1,287 - - - - Opemasa Andina, Ltda (6) 1 284 - 569 508 - - - - Duro Felguera Argentina, S.A. 2,321 (532) - 1,198 2,425 - - - - Turbogeneradores de Venezuela C.A. 42 2,247 - 6,948 (1,507) - - - - Mompre Montajes de Precisión Venezuela, C.A. 98 1,942 - (285) (1,635) - - - -



49


Equity


items (1)

Operating


Carrying value

in parent company





parent

Associates: Ingeniería EIA XXI, S.A. (6) 456 5,613 - 296 294 2,625 - - (32) Zoreda Internacional, S.A. n.a n.a n.a n.a n.a 48 - - - MDF Tecnogás S.A. (7) 200 146 - 95 - 100 - - (1) Conaid Company S.R.L. (5) n.a n.a n.a n.a n.a - - - - Sociedad de Servicios Energéticos Iberoamericanos, S.A. (4) n.a n.a n.a n.a n.a 7 (4) - (2)



50


Equity


items (1)

Operating


Carrying value

in parent company


Appropriation/ application/



parent

Group: Direct holding (2) Núcleo de Comunicaciones y Control S.L.U. (3) 4,000 (252) 6,148 (6,640) (4,861) 38,395 - - (20,779) PT Duro Felguera Indonesia 477 208 (10) 77 85 477 - - - Montajes de Maquinaria de Precisión, S.A.U. (3) 2,736 2,937 (4,093) 3,122 4,730 3,233 - - - Felguera I.H.I., S.A. (3) 2,103 32,128 (1,191) 8,061 5,982 1,566 - - - Duro Felguera Investment, S.A.U. 23,468 8,321 605 (202) 5,759 38,218 - 3,745 - Eólica del Principado, S.A.U (7) 90 - (41) (3) (3) 54 - (1) (26) Turbogeneradores del Perú, S.A.C. 9 506 214 1,151 939 8 - - - Duro Felguera Industrial Projects (7) 140 - (11) 15 7 140 - 16 (4) Duro Felguera Oil & Gas, S.A.U. 3,000 - 111 (1,032) (715) 5,835 - (715) (3,439) Equipamientos Construcciones y Montajes, S.A. de C.V 166 1,356 (147) 1,572 2,046 - - - - Proyectos e Ingeniería Pycor, S.A. de CV 481 77 (601) 28 30 9 - - (9) Felguera Diavaz Proyectos México, S.A. 3 - (582) - - 1 - - (1) Duro Felguera Do Brasil 91 2,179 (1,801) 6,471 4,900 91 - - - Eolian Park Management, S.A (7) 500 32 (511) - - 400 - (1) (384) DF Ingeniería Técnica de Proyectos y Sistemas, S.A.U (7) 80 (1) (48) 368 433 83 - 52 - Duro Felguera Operación y Montajes, S.A.U. (3) 120 12,430 (6,863) 7,600 7,103 10,485 - - - Epicom, S.A. 217 2,176 - 1,414 1,013 4,635 - - - Felguera Tecnología de la Información, S.A (7) 90 1,007 143 22 16 176 - - - Felguera Gruas India Private Limited 1,372 77 (318) (3,967) (4,155) 1,366 - (1,366) (1,366) DF Middle East General Contracting LLC (7) 30 - 1 (18) (18) 32 - 11 (19) Duro Felguera UK Limited 24 1 (304) (11,209) (11,326) 24 - (24) Duro Felguera Australia Pty Ltd. - 3,777 728 - 1,195 - - - - Duro Felguera Saudí LLC 237 - - - - 225 - - - Duro Felguera Gulf Contracting LLC 30 - (4) (107) (108) 32 - (32) (32)

(3) The Company participates directly and indirectly in temporary consortium activities which are included in the companies' accounts based on their percentage interest. (7) Unaudited.


51


Equity


items (1)

Operating


Carrying value

in parent company





parent

Indirect holding Duro Felguera Rail, S.A. 7,997 3,151 955 997 1,064 - - - - Pontonas del Musel, S.A (7) 510 120 (9) 33 28 - - - - DF Técnicas de Entibación, S.A.U. 3,936 1,532 151 519 216 - - - - Duro Felguera Calderería Pesada, S.A.U. 9,843 4,873 (1,372) 3,789 2,392 - - - - Opemasa Andina, Ltda (6) 1 792 (15) (41) (40) - - - - Duro Felguera Argentina, S.A. 2,321 1,892 (369) 2,116 536 - - - - Turbogeneradores de Venezuela C.A. 42 730 - 1,830 (912) - - - - Mopre Montajes de Precisión Venezuela, C.A. 98 362 - 75 (281) - - - -

(1) These data mainly reflect interim dividends paid during the year. (2) Consolidated data included in direct shareholding. (3) The Company participates directly and indirectly in temporary consortium activities which are included in the companies' accounts based on their percentage interest. (4) Dormant. (5) In liquidation. (6) Audited by a firm of auditors differing from the Company's auditors. (7) Unaudited.


52


Equity


items (1)

Operating


Carrying value

in parent company





parent

Associates: Ingeniería EIA XXI, S.A. (6) 456 5,835 - (1,111) (1,122) 2,625 - (816) (816) Zoreda Internacional, S.A. n.a. n.a. n.a. n.a. n.a. 48 - - (32) MDF Tecnogás S.A. (7) 200 389 - 105 - 100 - (99) (100) Conaid Company S.R.L. (5) n.a. n.a. n.a. n.a. n.a. - - - - Sociedad de Servicios Energéticos Iberoamericanos, S.A. (4) n.a. n.a. n.a. n.a. n.a. 7 (4) - (2)

(1) These data mainly reflect interim dividends paid during the year. (2) Consolidated data included in direct shareholding. (3) The Company participates directly and indirectly in temporary consortium activities which are included in the companies' accounts based on their percentage interest. (4) Dormant. (5) In liquidation. (6) Audited by a firm of auditors differing from the Company's auditors. (7) Unaudited.


53

None of the Group companies in which the Company has an interest is listed on a stock exchange.

There are no companies in which there is an interest of less than 20% and it is concluded that there is

significant influence or in which there is an interest of more than 20% and it may be concluded that

there is no significant influence.

The Company has no contingencies in relation to associates.

11. Loans and receivables

Thousand euro

2014 2013

Long-term loans and receivables:

- Employee loans 89 122

- Other financial assets 21 31

110 153

Short-term loans and receivables:

- Trade receivables 178,100 204,665

- Work completed pending certification 652 8,366

- Impairment provisions (1,683) (2,184)

- Loans to Group companies and associates (Note 31) 71,955 47,534

- Trade receivables, Group companies (Note 31) 2,400 2,159

- Work completed pending certification, Group (Note 31) 7,959 804

- Sundry receivables 7,197 5,081

- Employee loans 106 193

- Current tax assets (1) 11,123 17,250

- Other receivables from Public Administrations (1) 9,953 20,762

- Loans to companies 14 905

- Other financial assets 4,278 4,412

292,054 309,947

292,164 310,100

(1) Balances with Public Administrations are not included in the analysis of financial instruments (Note

9).

The fair values of loans and receivables are the same as the face value.

The heading Work completed pending certification includes the difference between production

recognised by the Company in each project, and the invoices issued to customers. This amount

relates to work covered by the terms of the relevant contracts in which the billing milestones for the

work performed have yet to be reached. The Company considers that there is no uncertainty that this

work will be invoiced.

The heading Other receivables from Public Administrations mainly relates to VAT to be offset in

temporary consortium activities. The heading Current tax assets includes withholdings made in the

year in relation to advance payments of corporate income tax and the amount refundable for 2013

corporate income tax. On 23 January 2015, the Company received €6,189 thousand in relation to

corporate income tax for 2013.


54

The carrying value of loans and receivables are denominated in:

Thousand euro

2014 2013

Euro 274,149 204,555

USD 11,427 88,480

Algerian dinar 1,031 -

Venezuelan bolivar 3,364 17,065

Other currencies 2,193 -

292,164 310,100

Movements in the provision for impairment losses on trade receivables are as follows:

Thousand euro

2014 2013

Opening balance (2,184) (1,224) Additions due to business combinations (Note 5) - (142) Provision for impairment of receivables - (904) Reversal 501 86

Closing balance 1,683 (2,184)

The rest of the accounts included under Loans and receivables have not suffered any impairment

losses.

The maximum exposure to credit risk at the reporting date is the fair value of each of the categories of

the aforementioned receivables. The Company does not maintain any guarantee as insurance.

The total amount of the costs incurred and profits recognised (less recognised losses) for all current

contracts at the balance sheet date was €1,588,901 thousand (2013: €1,601,868 thousand) and

€495,015 thousand (2013: €420,902 thousand), respectively. The Company does not record any

customer withholdings.

At 31 December 2014, in addition to receivables provided for, accounts receivable amounting to

€166,457 thousand had fallen due (2013: €197,261 thousand). Overdue balances which are less than

6 months old are not considered to be impaired since these accounts relate to customers with no

recent history of default. Balances which are more than 6 months overdue, which relate to projects in

progress, are not considered to be impaired either as there are advance payments yet to be made

recognised under Creditors and other payables (Note 23) amounting to €41 million (2013: €59 million).


55

Among due balances, the most relevant figure relates to the “Termocentro” project under way in

Venezuela, amounting to €109,700,000 (2013: €163,709,000). A payment schedule for this project

has been approved by the Venezuelan government. Duro Felguera's past experience with respect to

such payment schedules is that, although the dates referred to are estimates, the commitments are

eventually fulfilled. In the last quarter of 2014 and early 2015 payments have been received of €68

million. The amount outstanding at the date of these financial statements is €95 million (9% of the total

selling price of the contract).

The Company performed an analysis taking into account the debtor's risk of insolvency in accordance

with current accounting regulations, the high volume of payments received in recent months, the

existing maximum risk in the project in progress and the importance or strategic character of the

project for the customer. Additionally, the Company has obtained a debt acknowledgment letter from

the customer, on the basis of which it is not considered necessary to record any impairment with

respect to these receivables.

During 2015 and to the date of preparation of these annual accounts approximately €23 million has

been received, of which €16 million corresponds to the "Termocentro" project.

Thousand euro

2014 2013

Up to 3 months 6,161 21,783

Between 3 and 6 months 4,592 57,434

6 months to one year 35,276 18,652

More than 1 year 120,428 99,392

166,457 197,261

12. Derivative financial instruments and hedging activities

Thousand euro

2014 2013

Assets Liabilities Assets Liabilities

Interest rate swaps - 86 354 -

Other - 1,250 - 88

Total - 1,336 354 88

Less non-current portion: - (1,120) - (88)

Current portion - 216 354 -

Held-for-trading derivatives are classified as current assets or liabilities. The fair value total of a

hedging derivative is classified as a non-current asset or liability if the remaining maturity of the

hedged item is greater than 12 months and as a current asset or liability if the remaining time to

maturity of the hedged item is less than 12 months.


56

a) Financial derivatives

At the year end the Company held the following derivatives which had not been classified as

accounting hedges:

- Interest rate tunnel linked to a long-term loan to finance a sun farm with the following

characteristics:

Variable rate to cover: 12-month Euribor, payable half-yearly

Floor: 4.15% - Ceiling: 5.15%

Current nominal: €573 thousand

Maturity date: 02 April 2021

Impact on earnings in 2014 due to interest-rate differential: loss of €86 thousand (2013: profit

of €35 thousand).

b) Accounting hedges

The Company applies accounting hedges to cash flows to cover the spot exchange rate risk

associated with future payments in US dollars expected to be made for certain projects, by maintaining

the cash collected in that currency in the balance sheet at amounts similar to the future payments in

US dollars. Through this arrangement a 100% effective hedge is achieved, in the amount and time

period associated with the exchange rate risk.

Valuation differences of the US dollars allocated for these purposes are recorded in equity under

Value adjustments and are recognised in the income statement in the year or years during which the

hedged transaction affects the income statement.

At 31 December 2014 the Company had hedged future transactions with a notional value of USD 34.8

million by maintaining balances of USD 28.8 million under Cash and banks, USD 9.1 million under

Trade receivables and USD 3.2 million under Trade payables.

The years in which the hedged flows amounting to USD 34.8 million are expected to arise and in

which it is expected that they will affect results and the movement in the net cash balance in US

dollars are as follows:

Thousand USD

Receipts Payments Cash

balance

Cash in USD at 31 December 2014 28,811

Q1 2015 17,384 7,794 38,401

Q2 2015 10,615 12,291 36,725

Q3 2015 14,941 10,995 40,671

Q4 2015 5,292 12,774 33,189

Q1 2016 6,395 13,795 25,789

Q2 2016 10,304 6,738 29,355

Q3 2016 1,421 13,756 17,020

Q4 2016 10,659 7,420 20,259

Q1 2017 - 14,839 5,420

Q2 2017 - 1,145 4,275

Q3 2017 1,904 2,371

Q4 2017 - 2,233 138


57

Valuation adjustments recorded in equity for the above hedging operations break down as follows:

Thousand euro

2014 2013

Balance at 1 January (1,246) 2,287

Movement due to business combinations - (433)

Net variation due to customer invoicing 427 (1,890)

Net variation due to cash balances 2,438 (1,413)

Transfer to results due to application of the hedge (profit)/loss (239) (2,120)

Transfer to results due to exchange differences (78) 1,974

Other (1,048) 349

Balance at 31 December 254 (1,246)

13. Inventories

The entire balance under Inventories at 31 December 2014 and 2013 relates to advance payments to

suppliers in order to execute projects in progress.

14. Cash and cash equivalents

Thousand euro

2014 2013

Cash at bank and in hand 25,545 27,246 Other cash equivalents 165,286 208,956

190,831 236,202

Total cash and cash equivalents are included in the statement of cash flows. At 31 December 2014

and 2013 there are no significant amounts of cash and cash equivalents which are not available for

use.

“Other cash equivalents” mainly records deposits in euro and dollars maturing in less than three

months. The interest rates on these euro and dollar deposits have fluctuated between 0.5% and

1.65% and 0.17% and 0.7%, respectively (2013: between 2.42% and 1.89% and 1.15% and 0.02%).

At 31 December 2014, the balance in “Other cash equivalents” includes deposits by temporary

consortium activities bearing interest at the rates offered by the banking market referred to in the

preceding paragraph for an approximate amount of €48,254 (2013: €29,000 thousand).

Cash and equivalent balances are denominated in the following currencies:

2014 2013

Euro 108,452 163,371 US Dollar 71,406 72,831 Algerian dinar 10,973 -

190,831 236,202


58

15. Capital, share premium, reserves, prior-year results and profit/(loss) for the year

a) Capital

Duro Felguera, S.A.'s share capital is represented by 160 million shares in the form of accounting

entries with a par value of €0.5 each, fully subscribed and paid in. All the shares are listed on the

Madrid, Barcelona and Bilbao stock exchanges, and have the same voting and dividend rights.

At the date of these annual accounts, according to information reported to the CNMV, the following

legal entities hold an interest of 3% or more in the Company's share capital:

Shareholder % direct or indirect

shareholding

2014 2013

Inversiones Somió, S.L. 24.39% 24.40% Inversiones Río Magdalena, S.L. 9.80% 9.60% Onchena, S.L. 5.04% 5.04%

The indirect owner of the shares held by Inversiones Somió, S.L. is Mr. Juan Gonzalo Álvarez Arrojo.

The indirect owner of the shares held by Inversiones Río Magdalena, S.L is Mr. Ramiro Arias López.

b) Share premium

The Spanish Companies Act 2010 expressly permits the share premium to be used to increase capital

and provides no specific restriction with respect to the availability of this balance.

c) Treasury shares

On 19 June 2014 the Company's shareholders, in general meeting, agreed to authorise the acquisition

of a maximum number of own shares provided that, when added to those already held by the parent

company or its subsidiaries, they do not exceed 10% of the parent company's share capital, at a

minimum price of €1 and a maximum price of €18 per share. Authorisation was granted for a

maximum term of five years as from the date on which the resolution was adopted.

On 25 April 2013, the company’s shareholders, in general meeting, resolved to carry out a public

offering for the acquisition of the Company's shares at a price of €5.53 per share. The offering was

authorised by the CNMV on 24 July 2013, subject to the condition that Company may not resolve to

reduce capital in order to redeem the shares for a period of two years as from the purchase date. The

public offering was issued on 17 September 2013 and was addressed to all holders of shares in Duro

Felguera, S.A. covering a maximum of 15,346,472 shares in the parent company which represented

9.59% of capital which, together with the 653,528 treasury shares held by the Company prior to the

offering, represents 10% of the shares making up the share capital of Duro Felguera, S.A.

At 31 December 2014, the parent company held 16,000,000 treasury shares totalling €87,719

thousand (€87,775 thousand at 31 December 2013).


59

d) Reserves

Thousand euro

2014 2013

Legal and statutory:

- Legal reserve 16,000 16,000

16,000 16,000

Other reserves:

- Voluntary reserves 144,185 129,003

- Revaluation reserve (Royal Decree-Law 7/96) 958 958

- Reserves for adjustments to RD-1514/2007 (81) (81)

- Differences on translation of capital to euro 75 75

- Other reserves 4 4

- Reserves for business combinations (1,545) (1,545)

143,596 128,414

159,596 144,414

e) Legal reserve

Appropriations to the legal reserve are made in compliance with Article 274 of the Spanish Companies

Act 2010, which stipulates that 10% of the profits for each year must be transferred to this reserve until

it represents at least 20% of share capital.

The legal reserve is not available for distribution. Should it be used to offset losses in the event if no

other reserves being available, it must be replenished out of future profits.

f) Revaluation reserve Royal Decree Law 7/1996

Following the three-year period during which the tax authorities may inspect the balance in the

revaluation reserve, the balance may be used, free of tax, to offset prior, current or future losses or to

increase capital. As from 1 January 2008 the balance may be transferred to unrestricted reserves

provided that the capital gain has been realised. The capital gain will be deemed to have been

realised in an amount equal to the depreciation that has been charged in the accounts or when the

restated assets have been transferred or written off. Should the balance in this account be used for

any purpose other than those envisaged in Royal Decree-Law 7/1996, the balance will become

taxable.

g) Prior-year results

Thousand euro

2014 2013

Retained earnings 4,918 4,105

4,918 4,105


60

h) Profit/(loss) for the year

h.1) Proposed distribution of profits

The proposal to be presented to the General Shareholders' Meeting regarding the distribution of

results and reserves is as follows:

Thousand euro

2014 2013

Available for distribution

Profit/(loss) 45,577 56,974

45,577 56,974

Thousand euro

2014 2013

Application

Voluntary reserve 10,577 15,374

Dividends 32,000 38,400

Retained earnings 3,000 3,200

45,577 56,974

h.2) Interim dividend

On 30 July 2014 and 26 November 2014, the parent company’s Board of Directors adopted a

resolution to pay interim dividends out of 2014 profits at a gross amount of €0.06 per share, totalling

€9,600,000 each, to be made on 15 September and 17 December 2014.

As is required by Article 277 of the Spanish Companies Act 2010, the directors prepared the following

liquidity statement that evidenced the existence of sufficient liquid assets. Thousand euro

Dividend September

2014

Dividend December

2014

Forecast distributable 2014 profits

Projection of profits net of taxes at 31.12.14 47,242 47,242

Estimated distributable 2014 profits 47,242 47,242

Interim dividends to be paid 9,600 9,600

Cash forecast for the period between:

Cash balances at 31.07.14 / 30.11.14 358,917 367,679

Projected receipts 1,202,450 1,138,603

Projected payments included in interim dividend (1,152,599) (1,223,778)

Projected cash balances at 31.07.15 / 30.11.15 408,768 282,504

On 27 February 2015 the Board of Directors approved a third interim dividend for 2014 of €0.04 per

share, payable on 17 March 2015. Additionally, a proposal will be made to the General Meeting for the

payment of complementary dividend of €0.04 per share.


61

h.3) Restrictions on the payment of dividends

The Legal Reserve is restricted.

16. Share-based payments

On 26 November 2014, the Company's Board of Directors agreed to implement a Share Delivery Plan

for 2014 aimed at the members of the Management Committee, up to a maximum of €12,000 per

person. The plan does not lay down any conditions concerning irrevocability.

The plan was executed on 28 November 2014, with the following results:

Number of members: 12 Number of shares delivered 33,889 Unit price per share (€) 3.54

This price was the opening quoted price of parent company shares on 28 November 2014.

17. Capital grants received

The amount recognised under Capital grants received relates to the restatement of the loans granted

for building construction, net of the tax effect (Note 21). In 2014 €87 thousand was released to the

income statement (2013: €146 thousand).


62

18. Creditors and payables

Thousand euro

2014 2013

Long- term creditors and payables:

- Bank borrowings 130,467 67,256

- Finance lease creditors 22,238 3,792

- Other loans 5,801 6,272

- Long-term payables to Group companies (Note 31) 3,000 3,000

161,506 80,320

Short-term creditors and payables:

- Bank borrowings 5,955 41,871

- Finance lease creditors 1,814 877

- Trade payables 75,135 87,140

- Trade payables, Group companies and associates (Note 31) 10,414 17,136

- Sundry payables 4,724 1,330

- Fixed asset suppliers - 2,655

- Short-term payables, Group companies and associates (Note 31) 28,498 41,229

- Other financial liabilities 1,844 2,111

- Accrued wages and salaries 4,906 4,760

- Current tax liability (1) 145 3

- Other taxes and social security payable(1) 10,893 10,043

- Advance payments from customers 118,192 161,792

262,520 370,947

424,026 451,267

(1) Balances with Public Administrations are not included in the analysis of financial instruments

(Note 9).

The exposure of the Company’s accounts payable to interest rate fluctuations, mainly in payables to

Group companies and credit institutions, amounting to €11 thousand (2013: €158,025 thousand), is

revised annually and quarterly, respectively.

The carrying values and fair values of long-term payables are as follows:

Thousand euro

Carrying value Fair value

2014 2013 2014 2013

- Bank loans 130,467 67,256 130,467 67,256

- Finance lease creditors 22,238 3,792 22,238 3,792

- Other loans 5,801 6,272 5,801 6,272

- Long-term payables to Group companies 3,000 3,000 3,000 3,000

161,506 80,320 161,506 80,320

The carrying amounts of short-term payables approximate their fair values, since the effect of

discounting is immaterial. Fair values are based on cash flows discounted at an interest rate based on

the borrowing rate of 4% (2013: 4%).


63

The effect of discounting zero interest loans is recognised under Capital grants net of the tax effect,

which is transferred to the income statement on the basis of the amortisation percentage subsidised.

The carrying amounts of the Company’s payables are denominated in the following currencies:

Thousand euro

2014 2013

Euro 386,708 425,658

USD 9,318 10,956

GBP 3 47

Venezuelan bolivar 747 14,201

Algerian dinar 12,325 -

Other 14,925 405

424,026 451,267

The Company has the following undrawn credit and discounting facilities:

Thousand euro

2014 2013

Floating rate:

- maturing in less than one year 15,000 9,952

- maturing in more than one year 104,000 44,089

119,000 54,041

a) Bank loans Bank loans at 31 December 2013 included a loan to the parent company in September 2013 for a total amount of €100 million and a term of three years. The loan is repayable annually in instalments of one third of the principal, starting in September 2014. On 17 March 2014, the loan was renegotiated, the new terms being as follows:

€40 million loan with a single maturity on 17 March 2017.

€30 million loan with a six-year term and annual repayments, commencing on 17 March 2015.

€30 million credit line maturing on 17 March 2017. This change has been recorded as a repayment of the initial financial liability and recognition of a new financial liability. All related costs, totalling €160 thousand, have been recorded in the consolidated income statement. Additionally, on 23 October 2014 the single maturity loan was increased by €15 million and the maturity date was extended by 2 additional years. The new maturity date is therefore 17 March 2019. The balance drawn down at 31 December 2014 amounts to €85 million and is recognised on the liabilities side of the balance sheet. On 3 February 2014 a 5-year loan of €50 million was obtained with a 3 year grace period. The first repayment is due on 3 February 2017.


64

At 31 December 2013 a €10 million loan maturing in October 2014 was recorded. At 31 December

2014, said loan had been fully repaid.

b) Finance lease creditors

The heading Finance lease liabilities mainly includes €20,260 thousand relating to a lease for a period

of 13 years with a grace period of one year for the acquisition of an office building in Madrid on 29 May

2014 (Note 8). The applicable interest rate is 3.3%. This heading also includes €3,792 thousand

relating to the properties indicated in Note 8.

Finance lease liabilities are effectively secured if the rights to the leased asset revert to the lessor in

the event of non-compliance.

The gross finance lease liability – minimum lease payments:

Thousand euro

2014 2013

Up to 1 year 2,377 921

Between 1 and 5 years 13,651 3,863

More than 5 years 13,563 -

Future financial charges under finance leases (5,539) (115)

Present value of finance lease liabilities 24,052 4,669

The present value of finance lease liabilities is as follows:

Thousand euro

2014 2013

Up to 1 year 1,814 877

Between 1 and 5 years 10,482 3,792

More than 5 years 11,756 -

24,052 4,669

c) Other loans

“Other long-term loans” includes discounted payables to public institutions, mainly loans received from

the Ministry of Education and Science and other bodies, for a nominal amount of €11,306 thousand.

The effect of discounting is recognised under capital grants.

The present value of the loans at 31 December 2014 amounts to €5,801 thousand (2013: €6,272

thousand).

d) Other current financial liabilities

This heading mainly reflects the short-term portion of payables to public institutions described above.


65

e) Information on the deferral of payments to suppliers. Additional Provision Three "Disclosure

requirement" Law 15/2010

As provided by said law and a Resolution of 29 December 2010, the Company has checked trade

creditor balances at 31 December 2014 and 2013 pending payment which might exceed the legally

established time limit, concluding that at said dates there are no balance worthy of mention which

exceed said term.

19. Long-term employee benefit commitments

A breakdown of the amounts recognised in the balance sheet in respect of long-term employee

benefits and the corresponding charges to the income statement for the different types of defined

contribution commitments that the Company has arranged with its employees is as follows:

Thousand euro

2014 2013

Balance sheet commitments:

- Coal vouchers 270 299

- Retirement benefits 750 833

1,020 1,132

The amounts recognised in the balance sheet have been calculated as follows:

Thousand euro

2014 2013

Present value of the obligations undertaken 1,020 1,132

Balance sheet liability 1,020 1,132

a) Coal vouchers

The movement in the coal voucher commitment with serving personnel is as follows:

Thousand euro

2014 2013

Opening balance 299 366

Benefits paid - (38)

Transfers - -

Reversals (29) (29)

Closing balance 270 299

Annual transfers for coal vouchers are calculated based on actuarial studies described in Note 3.14.

Actuarial gains and losses that arise from adjustments applied due to experience and changes in the

actuarial assumptions used are charged or credited to equity in the statement of recognised income

and expense in the period in which they arise.

The provision at the year end relates mainly to accruals of future commitments acquired with serving

and retired personnel for the monthly supply of a specific quantity of coal.


66

b) Other obligations with employees

The movement in the liability for other obligations with employees is as follows:

Thousand euro

2014 2013


Increase due to business combinations (Note 5) - 377

Current service cost 359 232

Decreases (442) (704)

Closing balance 750 833

20. Provision for other liabilities and charges

Movements in the year in this heading have been as follows:

The total of these provisions is analysed below:

Thousand euro

2014 2013

Non-current 15,877 1,211

Current 25,758 46,302

41,635 47,513

“Provisions for liabilities” mainly reflects provisions to cover negative equity in certain subsidiaries (Note 24).

The “Provision for warranties” basically includes those amounts that it has been considered

reasonable to provide for as a result of various contractual clauses relating to warranties and liabilities

which, if appropriate, would have to be borne, following completion of the work, and similarly, taking

into account the historical development of the amounts that have had to be borne for this type of

contingencies.

At 31 December, “Other provisions” basically included contingencies derived from loss-making

projects amounting to €6,862 thousand which were applied in 2014 in the amount of €6,822 thousand.

At 31 December 2014 contingencies derived from loss-making projects amounted to €394 thousand.

Thousand euro

2014 Provisions for

liabilities

Provisions for

warranties

Other provisions

Total

Opening balance 1,211 38,731 7,571 47,513

Provisions 14,695 3,033 1,641 19,369

Reversals and applications (28) (18,223) (6,970) (25,221)

Transfers - - (26) (26)

Closing balance 15,878 23,541 2,216 41,635


67

21. Deferred taxes

Set out below is an analysis of deferred tax:

Thousand euro

2014 2013

Deferred tax assets:

- Temporary differences 16,454 18,453

16,454 18,453

Deferred tax liabilities:

- Temporary differences (2,920) (2,907)

(2,920) (2,907)

Deferred taxes 13,534 15,546

Thousand euro

2014 2013

Deferred tax assets:

- Non-current 15,936 16,394

- Current 518 2,059

16,454 18,453

Deferred tax liabilities:

- Non-current (2,920) (2,907)

(2,920) (2,907)

Deferred taxes 13,534 15,546

The gross movement in deferred taxes is as follows:

Thousand euro

2014 2013

Opening balance 15,546 11,365

Additions due to business combinations (Note 5) - 5,534

Charges in the income statement (Note 23) (1,081) (1,823)

Tax charged directly to equity (931) 470

Closing balance 13,534 15,546

Deferred taxes basically relate to deferred tax on the capitalisation of tax losses and deductions

generated by the tax group, provisions for loss-making portfolios and provisions for liabilities.

Deferred tax assets for tax loss carry forwards are recognised to the extent that the corresponding tax

benefit will probably be realised by way of future tax benefits, which are expected to be recovered in

less than ten years.


68

The movement during the year in deferred tax assets and liabilities, not taking into account the offset

of balances, is as follows:

Thousand euro

Deferred tax assets

Pension and

personnel

provisions

Provisions for

warranties and

liabilities

Adaptation

to Royal

Decree

1514/2007

and other Total

Balance at 31 December 2012 561 3,659 9,666 13,886


combinations (Note 5) 115 3,157 2,414 5,686

(Charge) credit to income statement (196) (378) (1,069) (1,643)

Charged to equity - - 524 524


(Charge) credit to income statement (147) (1,660) 433 (1,374)

Charged to equity - - (625) (625)


Thousand euro

Deferred income tax liabilities

Capital gains

on transactions

with fixed

assets Other

Subsidies,

zero rate loans Total

Balance at 31 December 2012 154 1,633 734 2,521


combinations (Note 5) - 58 94 152

Charge (credit) to income

statement 1 179 - 180

Charged to equity - 98 (44) 54


Charge (credit) to income

statement (26) (267) - (293)

Charged to equity - 222 84 306


22. Income and expense

a) Transactions denominated in foreign currency

Transactions carried out in foreign currency are as follows:

Thousand euro

2014 2013

Purchases 12,681 117,179

Sales 48,261 111,229

60,942 228,408


69

b) Revenue

Revenue from ordinary activities breaks down geographically as follows:

%

Market 2014 2013

Domestic market 9.27 5.27

International market 90.73 94.73

100.00 100.00

Revenue can also be analysed by product line as follows:

%

Line 2014 2013

Energy project management 61.98 58.80

Mining & Handling project management 35.02 39.47

Sundry services 3.00 1.73

100.00 100.00

At the end of 2014 sales of €39 million, €37 million, €29 million and €35 million have been recorded to

four customers that individually represent over 10% of revenues from the Company's ordinary

activities (2013: €124 million and €59 million to two customers individually representing more than

10% of revenues from the Company's ordinary activities).

c) Operating grants released to income

Operating grants released to income mainly relate to research and development grants.

d) Personnel expenses

Thousand euro

2014 2013

Wages, salaries and similar remuneration 26,922 30,088

Termination benefits 335 648

Share-based payments 84

Staff welfare expenses:

- Employer’s Social Security contributions 5,053 5,184

- Other employee welfare expenses (27) (140)

32,367 35,780

The average number of employees by category during the year was as follows:

Number of employees

2014 2013

Directors 1 1

University graduates 211 167

Middle ranking specialists 106 83

Other technical personnel 72 98

Administrative personnel 38 38

Other 2 2

430 389


70

The distribution by gender of the Company’s personnel at the year end is as follows:

2014 2013

Men Women Total Men Women Total

Directors 1 - 1 1 - 1

Senior management 8 - 8 7 - 7

University graduates,

specialists and administrative

employees 300 103 403 287 96 383

Other 2 - 2 - 2 2

311 103 414 295 98 393

e) External services

This heading basically includes independent professionals' services and engineering services.

f) Gain/(loss) on fixed asset disposals

Thousand euro

2014 2013

Property, plant and equipment 726 -

Investment property - 79

726 79

23. Corporate income tax and tax situation

Set out below is the reconciliation between net income and expense for the year and the income tax

assessment base:


Income and expenses for the year Income statement

Increases Decreases Total

Profit/(loss) after taxes 45,577

Corporate income tax 2,581 - 2,581

Permanent differences 17,904 (62,854) (44,950)

Temporary differences:

- arising in the year 17,038 - 17,038

- arising in prior years - (21,576) (21,576)

Tax base (1,330)

Offsetting of tax-loss -

(1,330)


71

Income tax expense is analysed below:

Thousand euro

2014 2013

Current year tax - 851

Foreign taxes 1,361 1,875

Adjustments prior year tax (179) (355)

Adjustment prior year deferred tax (Note 21) 261 1,525

Tax credit (Note 21) (1,067) (722)

Tax Lease - 2,043

Deferred tax (Note 21) (183) 1,020

Tax rate regularisation (Note 21) 2,070 -

Other 318 -

2,581 6,237

Current corporate income tax is the result of applying the 30% tax rate to taxable income.

Deferred tax assets for tax loss carryforwards amounting to €227 thousand have been recorded and

deductions of €840 thousand have been generated, which will be applied in future years. Withholdings

and payments on account have amounted to €4,897 thousand (2013: €6,227 thousand).

Permanent differences are mainly generated due to the application by the Company of the exemption

regime for income from abroad laid down in Article 50 of Legislative Royal Decree 4/2004 which

approved the revised Corporate Income Tax Act, and Law 18/1982 on the tax regulations governing

temporary consortium activities and regional industrial development companies, in the amount of

€35,780 thousand (2013: €47,981 thousand).

The Company is the parent of the tax group.

On 21 January 2015, the Tax Administration State Agency served notice of the commencement of a

tax investigation and verification procedure on Tax Group 22/1978 with respect to corporate income

tax, the parent of which is Duro Felguera, S.A, for years 2010 to 2012, and VAT Group 212/08, also

headed by Duro Felguera, S.A, for years 2011 to 2012 with respect to value added tax, as well as

years 2011 to 2012 for income tax (earned income, professional fees and investment income) and

non-resident income tax for said Company.

The Company's directors do not expect any additional significant liabilities that might affect the

accompanying accounts to arise from said tax audit, which is at an early stage.

On 17 July 2013 the European Commission issued a decision on the Spanish lease-based system of

incentives for the purchase of ships ("régimen español de arrendamiendo fiscal"), ruling that said

system was partially incompatible with the EU regulations on State aid.

The Commission also stated that in accordance with principles of legal security and legitimate

confidence, the return of State aid granted before 30 April 2007 could not be demanded (this being

when a declaration of incompatibility was issued with respect to the French fiscal EIGs). Therefore:


72

- The return of State aid granted after 30 April 2007 can be demanded.

- This must be demanded of those parties which, according to the still unpublished Decision of

the Commission, benefitted from said aid: EIGs and their investors. Beneficiaries may not

transfer their return obligation to third parties (particularly shipbuilders), even under contracts

that might have been concluded.

According to the Commission, it is up to the Spanish authorities to determine and demand the

amounts relating to incompatible aid that should be recovered from the EIGs and their investors,

having for this purpose a deadline of four months as from the date of notification of the Decision. The

total taxable bases at 30% used since 2007 relating to aid granted after 30 April 2007 was €24.5

million. In addition, €20.8 million was paid as an investment, obtaining a net tax benefit of €3.7 million.

However, following the criteria mentioned by the tax authorities at various meeting held in this respect

and by external advisors, the tax benefit withheld as investor has been calculated, which would

amount to €4,086 thousand. In relation to that figure, it has been estimated that the eligible fiscal aid

proportionate to that granted to shipping companies would amount to 50% thereof and accordingly the

amount of €2,043 thousand has been recorded under current liabilities on the balance sheet at 31

December 2013. Said figure is the best estimate of the possible recoverable aid, bearing in mind only

the measures regarded as unlawful, i.e. the advance depreciation of the leased assets and the tax

treatment based on tonnage for non-eligible companies and the application of Article 50.3 of

Corporate Income Tax Regulations, discounting the percentage of aid considered as eligible.

During 2014 the Spanish authorities served notice of the commencement of an inspection in relation to

the EIGs in which the Group has an interest which are affected by the above Decision, in order to

implement the recovery of the unlawful State aid. At the date of these financial statements said

inspection proceedings are still under way, and the date of completion cannot be determined. Their

estimated impact is as indicated in the above paragraphs.

It should be noted that on 10 June 2014, Duro Felguera, S.A filed an appeal against the above-

mentioned Decision by the European Commission with the European Court of Justice. It is expected

that these proceedings will be completed during 2015.


73

24. Financial income/(expense)

Thousand euro

2014 2013

Financial income:

From equity investments

- in Group companies and associates (Note 31) 23,771 16,217

From marketable securities and other financial instruments

- of Group companies and associates (Note 31) 609 1,241

- of third parties 2,534 4,520

26,914 21,978

Financial expenses:

On payables to Group companies and associates (42) (78)

On payables to third parties (4,334) (2,111)

(4,376) (2,189)

Changes in fair value of financial instruments:

Controlling interests and other (165) 6

Exchange differences 9,276 (8,335)

Impairment and profit/(loss) on disposal of financial instruments

Impairment and losses (15,774) (13,166)

Profit/(loss) on disposals and other (2) (60)

(15,776) (13,226)

Financial income/(expense) 15,873 (1,766)

a) Financial income and expense

Thousand euro

2014 2013

Financial income:

- Dividends from shares in group companies and associates 23,771 16,217

- Interest on debt securities 2,534 4,520

- Other financial income – Group companies 609 1,241

26,914 21,978

Financial expenses:

- Interest on current accounts and loans to Group companies (139) (78)

- Lease interest (44) (67)

- Loan interest (3,924) (1,736)

- Interest due to restatement (269) (308)

(4,376) (2,189)

b) Impairment and profit/(loss) on disposal of financial instruments

Thousand euro

2014 2013

Impairment losses:

- Investments in group Companies and associates (14,384) (11,965)

(14,384) (11,965)

Losses on disposals and other:

Impairment and reversal of other financial assets (1,392) (1,261)

(1,392) (1,261)

(15,776) (13,226)


74

Impairment of investments mainly derives from Duro Felguera UK Limited and Felguera Gruas India,

Private Limited (Note 10).

c) Exchange differences

Net exchange differences for the year mainly relate to the negative effect of the devaluation of the

bolivar and the pound sterling in the amount of €1,564 thousand and € 629 thousand, respectively,

and the tax effect of the strengthening of the US dollar, amounting to €11,690 thousand.

25. Cash flows from operating activities

Thousand euro

2014 2013

Profit/(loss) for the year before tax 48,158 63,211

Adjustments:

- Fixed asset depreciation/amortisation 1,448 1,493

- Impairment adjustments (501) 818

- Change in provisions (15,336) (1,273)

- Release of grants (87) (146)

- Exchange differences (5,583) 4,126

- Results of fixed asset write-offs and disposals (634) (79)

- Other movements in financial assets 84 -

- Impairment and reversals of investments 15,775 13,226

- Financial income (26,914) (21,978)

- Financial expense 4,376 2,189

- Change in fair value of financial instruments 1,428 -

(26,325) (1,624)

Changes in working capital:

- Inventories (4,929) 4,335

- Debtors and other receivables 35,094 (20,401)

- Other financial assets (26,352) -

- Other current assets (166) (2,094)

- Creditors and other payables (49,312) (97,765)

- Other financial liabilities (12,607) 21,124

- Other current liabilities (8) -

(58,280) (94,801)

Other cash flows from operating activities:

- Interest payments (4,376) (2,189)

- Dividend collection 23,771 16,217

- Interest collection 3,143 5,761

- Other tax payments (collections) (3,538) (8,007)

19,000 11,782

Cash flows from operating activities (17,447) (21,432)


75

26. Cash flows from investing activities

Thousand euro

2014 2013

Payments on investments:

- Group companies and associates (8,568) (1,931)

- Property, plant and equipment and intangible fixed assets (4,930) (2,546)

- Other financial assets (2,526) (3,700)

(16,024) (8,177)

Receipts from disinvestments:

- Property, plant and equipment and investment properties 726 79

- Other financial assets - 1,408

726 1,487

Cash flows from investing activities (15,298) (6,690)

27. Cash flows from financing activities

Thousand euro

2014 2013

Collections and payments on financial liabilities:

- Issue:

- Bank loans 65,757 110,000

- Payables to Group companies - -

- Repayment

- Bank loans (39,339) (14,537)

- Other payables (565) (686)

25,853 94,777

Dividend payments and return on other equity instruments:

- Acquisition of treasury shares (130) (85,363)

- Dividend payments and return on other equity instruments (40,787) (53,909)

(40,917) (139,272)

Cash flows from financing activities (15,064) (44,495)

28. Guarantees, commitments and other contingencies

a) Contingent liabilities

The Company has no contingent liabilities arising in the ordinary course of business which are

expected to trigger significant liabilities.

b) Guarantees

At the year end the Company had directly or indirectly furnished the following guarantees which

basically relate to security for sales contracts and loans, and bank guarantees:


76

Thousand euro

2014 2013

Duro Felguera Operaciones y Mantenimiento S.A.U. 14,496 26,636 Felguera Construcciones Mecánicas, S.A.U. - 2,702 DF Mompresa, S.A.U. 13,298 - Duro Felguera Calderería Pesada, S.A.U. 38,821 28,247 Felguera Melt, S. A.U. - 3,350 Duro Felguera Rail, S.A.U. 2,907 557 Felguera Gruas India Private Limited 38,158 18,958

Equipamiento, Construcción y Montaje S.A. de C.V. 976 2,833 Duro Felguera Australia Pty Ltd. 186,694 308,955 Consorcio El Sitio 17,784 133,435 Duro Felguera Argentina 51,326 38,639 Duro Felguera UK 37,809 36,514 Turbogeneradores de Perú 3,535 3,048

Núcleo 10,311 6,941 Epicom 886 - Eliolap S.A de C.V. - 1,277 Other Group companies 230 219

417,231 612,311

The Company also recorded the following commitments at the year end: Thousand euro

2014 2013

Guarantees for sales and implementation contracts 547,759 409,305 Financial guarantees - 3,648 Other items 70,919 54,315

618,678 467,268

The Company has not handed over any collateral as security for its projects. The Company has not

received any guarantees other than the guarantees for due compliance received by suppliers, which

are not controlled in detail as the Company understands that they do not imply any risk.

c) Commitments

Investments in tangible and intangible assets to which the Company is committed at the end of 2014

but which have yet to be incurred amount to €2,754 thousand (2013: €2,335 thousand).

29. Temporary consortium activities and branches

The Company participates together with other companies in several temporary consortium activities.

The amounts of the interest in their working capital and balances receivable or payable and

transactions with the temporary consortium activities are settled on the basis of the interest

percentage held due to the proportional inclusion of balances under the items in the consortium's

balance sheet and income statement. Balances involving an excess (or shortfall) paid to other

members of the consortium remain.

Set out below is a breakdown of temporary consortium activities at the year end together with the

percentage interests held and other significant information:


77

Company %

interest Registered

office Activity

UTE DF – TR Barranco II

50% Gijón Combined cycle turnkey supply Barranco II

UTE CTCC Puentes 50% Gijón Turnkey supply combined cycle thermal plant Puentes

UTE CTCC Barcelona 50% Madrid Combined cycle construction Barcelona Port

UTE CT Besós 50% Madrid Civil works for combined cycle plant

UTE Andasol III 40% Madrid Turnkey supply for solar plant

UTE Termocentro 90% Gijón Design, supply, construction and start-up of Termocentro CCTP

UTE Tierra Amarilla 90% Gijón Supply of certain equipment for the construction of a simply cycle TP in Tierra Amarilla

UTE Krishnapatnam 100% Gijón Manufacture, supply of two grab unloaders intended for the Krishnapatnam project in India, as well as supplies and related services and accessories of the supply awarded.

UTE New Chilca 85% Gijón Execution of the construction work on the New Chilca Combined Cycle thermal plant.

The amounts that are shown below represent the Group's interests in the temporary consortium's

assets and liabilities, and sales and results. These amounts are included in the balance sheet, income

statement, statement of cash flows and statement of changes in equity.

Thousand euro

2014 2013

Assets:

Non-current assets 313 11

Current assets 176,287 231,659

176,600 231,670

Liabilities:

Non-current liabilities 1,070 37

Current liabilities 138,794 125,150

139,864 125,187

Net assets 36,736 106,483

Income 58,230 133,017

Expenses (21,499) (85,253)

Profit after taxes 36,731 47,764


78

30. Directors’ and Senior Management remuneration

a) Remuneration of key management personnel and directors

Thousand euro

Salaries and other short-term remuneration: 2014 2013

Members of the Board of Directors 2,187 3,337 Management personnel 1,848 1,924

4,035 5,261

b) Loans granted to related parties

Thousand euro

2014 2013

Loans to directors, management personnel and their family

members:


Loan repayments (10) (10)

Closing balance (20) 30

Loans relate solely to management personnel and bear interest at the 1-year Euribor rate.

c) Article 229 of the Spanish Companies Act 2010: disclosure of directors' holdings, positions,

functions and activities in companies with an identical, analogous or complementary kind of

activity, and conflicts of interest:

In compliance with their duty to avoid any conflict with the Company's interests, during the year the

directors that have held positions on the Board of Directors have complied with the obligations laid

down in Article 228 of the Spanish Companies Act 2010. In addition, both they and persons related to

them have abstained from coming under the instances of conflict of interest envisaged in Article 229 of

said Law, except in cases in which the relevant authorisation has been obtained.

This information relates to the activities of the directors in relation to Duro Felguera, S.A. and its

subsidiaries.


79

31. Other related-party transactions

a) Transactions and balances with Group companies, associates and related companies

Transactions carried out during the year with Group companies and associates (direct or indirect investees) and balances with them at the year end are as follows:

Thousand euro

Transactions

Balances Debit/(Credit)

FY 2013

Revenue

Raw materials and consumables

Financial income

Financial expenses

Loans to Group

companies

Trade receivables and other financial assets

Payables to Group

companies

Trade payables,

Group companies

Dividends received

and other operating income

and other operating expenses

GROUP COMPANIES: a) Direct interest: Felguera I.H.I., S.A. 1,525

-

16

-

-

144

-

-

1,200

Duro Felguera Operación y Montaje, S.A.U 1,969

(18,381)

-

(27)

-

4,668

(3,000)

(7,676)

6,000 Duro Felguera Indonesia -

(187)

-

-

-

117

-

-

-

Duro Felguera Investment, S.A. -

-

31

-

2,400

1,257

-

-

- Montajes de Maquinaria de Precisión, S.A. 1,191

(6,208)

33

-

-

21,625

(17)

(3,590)

9,000

DF Argentina -

-

-

-

-

-

-

-

- DF UK 1,807

-

-

(32)

-

635

(15,919)

(32)

-

Eólica del Principado, S.A.U. -

-

-

-

-

6

-

-

- Duro Felguera Brasil -

-

-

-

-

4

-

-

-

DFOil&Gas 624

-

-

(4)

-

-

(1,431)

-

- Proyectos e Ingeniería Pycor, S.A. de C.V. -

(696)

-

-

-

349

-

(396)

-

Felguera Tecnologías de la Información 27

-

-

-

-

-

-

-

17 Felguera Grúas India Private Limited -

(2,603)

-

-

-

689

-

(2,354)

-

DF Ingenieria 7

(2,685)

4

-

-

1,495

-

(2,495)

- Duro Felguera Australia 804

-

-

-

-

1,061

-

-

-

Duro Felguera Middle East -

-

-

-

-

42

-

-

- Eolian Park Management, S.A. -

-

-

-

320

-

-

-

-

Núcleo de Comunicación y Control, S.L 447

(606)

59

-

3,025

-

(2,199)

(351)

- EPICOM -

-

-

-

-

-

(1,498)

-

-

DF Industrial Projects Consulting -

(317)

-

-

-

-

-

(52)

-

8,401

(31,683)

143

(63)

5,745

32,092

(24,064)

(16,946)

16,217


80

Thousand euro

Transactions Balances Debit/(Credit)

Revenue and other

operating income

Supplies and other

operating expenses

Financial income

Financial expenses

Loans to Group

companies


Other payables,

Group companies

Trade payables,

Group companies

Dividends received

b) Indirect interest: Técnicas de Entibación, S.A.U. 403

-

47

-

5,400

48

-

-

-

Felguera Construcciones Mecánicas, S.A.U. 108

(881)

30

-

2,713

(5)

-

- Felguera Parques y Minas, S.A.U. -

-

-

-

-

-

-

-

-

Felguera Calderería Pesada, S.A.U. 520

(129)

1

(8)

-

-

(11,968)

(10)

- Felguera Melt, S.A.U. 262

(22)

-

(2)

-

-

(3,412)

-

-

Felguera Raíl, S.A. 26

-

-

(5)

-

-

(2,310)

-

- Pontones del Musel, S.A. -

-

-

-

-

3

-

-

-

Equipamientos, Construcciones y Montaje, S.A. de CV -

-

-

-

-

-

(779)

-

-

Mopre Venezuela -

(3,402)

-

-

-

-

-

-

- Duro Felguera Argentina -

-

-

-

-

-

(45)

-

-

Felguera Diavaz -

-

-

-

47

642

-

-

- Turbogeneradores de Venezuela C.A. -

-

1,020

-

3,657

-

(1,646)

-

-

1,319

(4,434)

1,098

(15)

9,104

3,406

(20,165)

(10)

-

ASSOCIATES:

Estudios e Ingeniería Aplicada XXI, S.A. -

(325)

-

-

-

-

-

(180)

- MDF Tecnogas -

-

-

-

150

-

-

-

-

-

(325)

-

-

150

-

-

(180)

-

TOTAL 9,720

(36,442)

1,241

(78)

14,999

35,498

(44,229)

(17,136)

16,217


81

Thousand euro

Transactions

Balances Debit/(Credit)

FY 2014

Revenue and other operating income

Supplies and other operating expenses

Financial income

Financial expenses

Loans to Group

companies


Payables to Group

companies

Trade payables,

Group companies

Dividends received

GROUP COMPANIES: a) Direct interest: Felguera I.H.I., S.A. 2,025

(393)

-

-

-

-

(2,555)

-

1,200

Duro Felguera Operaciones y Montajes, S.A.U 1,916

(7,372)

15

(16)

-

9,307

(3,000)

(3,002)

7,500

Duro Felguera Investment, S.A.U. -

-

125

(4)

2,400

2,250

(28)

-

2,250 DF Mompresa, S.A.U. 2,139

(4,411)

58

-

-

22,461

(5,361)

(157)

7,000

DF Australia Pty Lda 7,959

-

-

-

-

9,407

-

-

- DF UK -

-

-

(93)

-

12,486

(14,971)

(93)

-

Eólica del Principado, S.A. -

-

-

-

-

6

- Duro Felguera Oil&Gas, S.A.U. 310

-

-

(4)

-

-

(2,500)

-

-

Equipamientos, Construcciones y Montaje, S.A. de CV - - - - - - (1,250) - - Proyectos e Ingeniería Pycor, S.A. de C.V. -

(816)

-

-

-

352

-

(540)

-

DF Ingeniería Técnica de Proyectos y Sistemas, S.A.U. 289

(6,832)

118

-

-

5,321

(8)

(6,431)

-

Eolian Park Management, S.A. -

-

-

-

320

-

-

- Felguera Diavaz, S.A. de C.V. - - - - 47 531 - - - Núcleo de Comunicación y Control, S.L 312

(582)

71

-

-

4,715

(67)

-

-

Núcleo Seguridad, S.A. - - - - - 86 - - - Epicom, S.A.U. 66 - - (4) - - (399) (4) - Felguera Tecnologías de la Información, S.A. 27 - - - - - - - 21 Duro Felguera Argentina - - - - - - (39) - - Duro Felguera do Brasil - - - - - 4 - - 4,000 Duro Felguera Indonesia - - - - - 173 - - - Felguera Grúas India Private Limited - - - - - 799 - - - Duro Felguera Middle East - - - - - 10 - - - DF Industrial Projects Consulting -

(322)

-

-

-

-

-

(51)

-

Duro Felguera Saudí LLC - - - - - 24 - - - Duro Felguera Gulf Contracting - - - - - 153 - - - Turbogeneradores de Perú -

-

-

-

1,726

-

-

1,800

15,043

(20,728)

387

(121)

2,767

69,811

(30,178) (10,278)

23,771


82

Thousand euro

Transactions Balances Debit/(Credit)

Revenue and other

operating income

Supplies and other

operating expenses

Financial income

Financial expenses

Loans to Group

companies


Other payables,

Group companies

Trade payables,

Group companies

Dividends received

b) Indirect interest: DF Técnicas de Entibación, S.A.U. 158

-

190

-

5,400

149

-

-

-

Duro Felguera Calderería Pesada, S.A.U. 754

(1,999)

1

(15)

-

2,047

(1,128)

(15)

- Duro Felguera Raíl, S.A.U. 277

-

11

(3)

-

1,962

(75) -

-

Pontones del Musel, S.A. -

-

-

-

-

-

(1) -

- Mopre Venezuela -

-

-

-

-

-

(99) -

-

Turbogeneradores de Venezuela C.A. -

-

20

-

-

178

- -

-

1,189

(1,999)

222

(18)

5,400

4,336

(1,303) (15)

-

ASSOCIATES:

Conaid Company S.R.L. -

-

-

-

-

-

-

-

- Estudios e Ingeniería Aplicada XXI, S.A. -

(372)

-

-

-

-

-

(121)

-

Zoreda Internacional S.A -

-

-

-

-

-

(17)

-

- MDF Tecnogas -

-

-

-

-

-

-

-

-

-

(372)

-

-

-

-

(17)

(121)

-

TOTAL 16,232

(23,099)

609

(139)

8,167

74,147

(31,498)

(10,414)

23,771


83

The balances and transactions included in the above tables mainly relate to:

- Accounts receivable and payable between Duro Felguera, S.A. and Group companies for trade

operations have usual market payment periods, are not insured and do not bear any interest.

- Current accounts, credit facilities and loans granted to and received from certain Group

companies, which bear interest at market rates. These current accounts, credit facilities and

loans bear interest which was paid in 2014 and 2013 at quarterly Euribor + 2.45% for debtor

balances and the quarterly Euribor for creditor balances.

At 31 December 2014, dividends and other significant benefits had been paid to shareholders (Note

15) amounting to €17,940 thousand (2013: €21,521 thousand).

32. Environmental information

The Company has taken the necessary measures to protect and improve the environment and to

minimise environmental impact, if applicable, in compliance with current environmental legislation.

33. Events after the reporting period

On 12 February 2015 the 33rd Exchange Agreement approved by the Venezuelan Government came

into effect, through which a new mechanism has been created known as the Marginal Currency

System (SIMADI), allowing cash and securities in foreign currency to be traded. The SIMADI allows

both individuals and businesses to buy and sell foreign currency with fewer restrictions than in the

other currency allocation systems existing in the country. In addition, the SICADI and SICAD II

systems have been unified and therefore three exchange rates coexist: CENCOEX, SICAD and

SIMADI.

The SIMADI offers a daily variable average price defined by supply and demand. The price of the first

auction on 12 February 2015 was 170 bolivar per dollar.

The Company will evaluate the possible effects of the new exchange rate on the basis of its evolution

and liquidity during 2015. However, given the low exposure to the bolivar (Note 3.19c) is not expected

that this new exchange rate could have significant effects on the Group's key figures in 2015.

34. Auditors’ fees

The fees accrued during the year by PricewaterhouseCoopers Auditores, S.L. for audit services

amounted to €190 thousand (2013: €225 thousand).

Fees accrued during the year to other companies operating under the PricewaterhouseCoopers name

for other services rendered to the Company amounted to €487 thousand (2013: €121 thousand).

DURO FELGUERA, S.A.

DIRECTORS' REPORT FOR 2014

84

DURO FELGUERA, S.A.

Directors’ Report for 2014

DURO FELGUERA, S.A.


85

Duro Felguera, S.A. is a listed company and is the Group parent. It fulfils two functions: as a holding

company, it provides services as a shared service centre which gives technical support to the analysis

and development of projects, centralises cash and financing management and operates an internal

audit service. In addition, it carries out some central activities, such as those relating to the Board of

Directors and the management of real-estate assets not assigned to projects.

The Board of Directors is the maximum decision-taking body and has eight members (including four

independent directors), in accordance with the Bylaws which stipulate that the Board of Directors shall

be formed by a minimum of six and a maximum of twelve members. The main responsibilities of the

Board of Directors consist of defining strategy, responding to shareholders, proposing the payment of

dividends to the General Shareholders' Meeting and supervising financial management and

information.

In 2013 the parent company Duro Felguera, S.A. carried out a merger with the subsidiaries Duro

Felguera Plantas Industriales, S.A., Felguera Parques y Minas, S.A. and Felguera Grúas y

Almacenajes, S.A. in which these subsidiaries were absorbed by the parent company. The merger

was carried out for reasons of efficiency and to strengthen the balance sheet of Duro Felguera S.A. by

bringing together the main lines of business, therefore achieving stronger support for its business

proposals in major projects. For this reason, since 2013 the Company has been the owner of the main

activities in the Energy and Mining & Handling segment.

Revenue for the year amounted to €228 million (2013: €331 million) and profits after tax stood at €46

million (2013: €57 million). As Group parent, the Company has received dividends from subsidiaries

totalling €22 million (2013: €16.2 million) and has made investment provisions amounting to €14

million (2013: €12 million).

The implementation of large-scale projects has continued in a satisfactory manner in Argentina, the

United Kingdom, Venezuela and Algeria.

Business outlook

Company management, taking into account the current portfolio of projects in progress and the

volume of proposals in the pipeline, expects the revenue figures to be maintained in the next few

years. Furthermore, and in line with expectations, a reduction in margins to levels closer to those that

are usual in the sector is envisaged. It is estimated, although without any commitment as this depends

on future factors that are impossible to know at this time, that medium-term margins could be in the

region of 5% to 8%.

MAIN RISKS AND UNCERTAINTIES

Operational risk

The main risk associated with turnkey projects relates to start-up and execution deadlines. Thanks to

its accumulated experience in this type of project, the Company has an excellent performance record

and penalties have rarely been applied by customers. Project managers regularly perform project

performance analyses and report the results to line managers, who in turn report to the executive

president.

In addition, the Board monitors situations that could involve a relevant degree of risk.

DURO FELGUERA, S.A.


86

Exchange rate risk

Given the international environment in which the Company operates, it is exposed to exchange rate

risk for transactions in foreign currencies, mainly the U.S. dollar (USD), and to a lesser extent, local

currencies in emerging countries, the most important currently being the Venezuelan bolivar.

The risks related to exchange rates and policy for managing these risks are summarised below:

To control the foreign currency risk that arises from future commercial transactions and recognised

assets and liabilities in currencies other than the euro, the Company uses various methods:

- Most contracts are "multi-currency", breaking down the selling price in the various

currencies of the expected costs and maintaining expected margins in euro.

- Financing of working capital relating to each project is denominated in the currency of

payment.

- For any amounts not covered by the above arrangements, exchange insurance or

forward contracts are concluded in line with the relevant terms; decision-making on

hedges is centralised in Group financial management.

Price risk

Projects that last two or more years initially involve a contract price risk, due to the effect of the

increase in costs to be contracted particularly when operating in the international market in economies

with high inflation rates.

In order to minimise the effect of future cost increases for these reasons, a scaled price review clause

is included in contracts of this kind pegged to consumer price indices, as in the case of its contract in

Venezuela for the Ferrominera del Orinoco Plant.

At other times the prices of contracts or associated subcontracts are denominated in stronger

currencies (USD) payable in local currency at the rate ruling on the collection date, with these

conditions being passed on to subcontractors.

Cash flow interest rate risk and fair value risk

As the Company has no significant non-current interest-bearing assets, income and operating cash

flows are substantially independent of changes in market interest rates.

The Company's interest rate risk results from long-term borrowings. Loans issued at variable rates

expose the Company to cash flow interest rate risk, which is partially offset by cash held at variable

rates.

The Company analyses its exposure to interest rates in a dynamic manner. Various scenarios are

simulated, taking into account refinancing, renewal of existing positions, and financing/hedging

alternatives. Based on these scenarios the Group calculates the effect on earnings of a certain

variation in the interest rate. For each simulation, the same variation in interest rates is used for all

currencies. The scenarios are used only for liabilities representing the most significant positions

subject to interest rate risk.

DURO FELGUERA, S.A.


87

Credit risk

Credit risk is managed by the Company by grouping financial assets as follows:

- Assets arising from financial derivatives and sundry balances included in cash and cash

equivalents.

- Trade and other receivable balances.

Financial derivatives and operations with financial institutions included as Cash and cash equivalents

are arranged with prestigious financial institutions. In addition, the Group has policies in place to limit

the amount of risk held with respect to any financial institution.

In relation to Trade and other receivables it is worth noting that, due to the nature of the business,

counterparties are concentrated depending on the Group’s most important projects. These

counterparties are mostly state or multinational corporations operating in the mining and energy

industries. Prior to entering into contacts the Company carries out analyses and the global position of

Trade and other receivables is monitored on an ongoing basis, while the most significant exposures

(including the type of entities mentioned earlier) are monitored on an individual level.

The Company's main customers make up 87% of Trade receivables at 31 December 2014 (2013:

89%) and involve operations with the kind of institutions referred to above, for which reason the

Company considers that credit risk is very limited.

Liquidity risk

The prudent management of liquidity risk entails maintaining sufficient cash and marketable securities,

ensuring available funding in the form of sufficient committed credit facilities and the ability to monetise

market positions. Due to the dynamic nature of the underlying businesses, the Treasury Department

aims to maintain flexibility in funding through available committed credit lines.

Management monitors Group liquidity forecasts on the basis of projected cash flows. Due to the self-

financing objective of the projects, the net treasury positions are positive. Additionally, the Company

has credit lines that offer an additional liquidity cushion. Management therefore believes that the

liquidity risk is low.

In addition, the Company's leverage ratio is lower than 1 for both 2014 and 2013. The Company

therefore does not have any short-term liquidity risk.

PERSONNEL

Performance and remuneration

Progress within the company is designed to promote high performance, which helps to retain the best

professionals and to attract new employees. The performance-based compensation, bonuses and

stock-based incentives are intended to boost employee engagement and align the interests of

employees with the Group's objectives, in both the short and the long term.

DURO FELGUERA, S.A.


88

Given the international nature of the Group, there is an expatriation policy with the overall aim of

achieving consistent, transversal and business-oriented criteria. During 2014, the above policy has

been altered with the overall aim of creating consistent, transversal and business-oriented criteria.

Communication and degree of employee involvement

Our communication channels are designed to keep employees informed, engaged and involved with

Group activities. This communication is carried out primarily through the corporate intranet. Honest

and open communication with employees is encouraged by management.

Health and safety

Occupational risk prevention has become a strategic factor in the Group since the establishment of the

Joint Prevention Service 12 years ago. This has allowed us to reduce the number of accidents per

year by 33%, a trend that has continued and strengthened over time, resulting in a reduction of 17% in

2014 compared with the previous year. This has been achieved by devoting more than 26,000 hours

of direct training to employees in 2014, structured into more than 3,500 training sessions across all

projects in which DF participates.

All Group companies and business lines have a health and safety management system implemented

and certified under the international standard OHSAS 18001:2007. This certification is an international

benchmark and is essential for taking part in tenders for large international projects.

During 2014, DF has received a number of mentions and distinctions in this area, including

congratulations from ESBI to DF Energy in the Carrington CCGT Project, the recognition and

accreditation by ENDESA of DF MOMPRESA in its INTERNATIONAL SAFETY WEEK for the work in

the Group II Review, and the positive valuation of FIHI for its work in Cyprus (VTTV) and Colombia

(ECOPETROL), as well as the mention for its participation in FORUM 2014 H&S organised by

PETROFAC (Saudi Arabia).

ENVIRONMENT

During 2014, Duro Felguera continued to integrate the environmental variable into its strategic

management, as an essential factor in maintaining the success of the organisation.

The aim is to create a common framework for environmental matters which enables the coordination

of the various existing plans and measures, respecting the autonomy and specific features of all

business segments.

With the implementation of the Environmental Management System, certified in 2013 under the

requirements of ISO 14001, the partial certifications existing in major project lines and specialised

services have been integrated.

Its fundamental principles are:

1. Monitoring corporate objectives and goals:

The environmental objectives are set annually with a focus on continuous improvement, taking as a

reference the identification of the most significant environmental issues in each business's activity.

DURO FELGUERA, S.A.


89

2. Identification and verification of legal requirements:

The Group has specialised computer tools to facilitate the identification of and ensure compliance with

legal obligations in each country. During 2014 the balance of environmental requirements met in its

projects was 100%, achieving a total absence of penalties in this area.

3. Assessment and identification of environmental matters:

The development of the Group's activities in any of their phases (design, construction, operation and

maintenance) implies certain environmental impacts that must be identified and evaluated in order to

prevent and minimise them as far as possible.

Environmental issues identified and controlled in projects developed during 2014 are:

- Generation of hazardous waste: waste oil and paint residues.

- Resource consumption: Water, electricity and raw materials

- Environmental emergencies: Oil leaks and spills

- Generation of combustion gases from machinery

- Noise generation

4. Operational control:

As explained above, once the significant environmental aspects are identified, DF plans and

establishes the methodology for action in the associated operations to ensure that they are performed

under environmentally appropriate conditions in all projects. Issues such as integrated water

management, waste control or efficient environmental management are some of the practices

implemented by DF in its projects.

Additionally, through this operational control the aim is to minimize the consumption of natural

resources as far as possible, emphasising biodiversity conservation in the regions where it develops

its projects.

During 2014 the following training schemes were successfully completed:

- Environmental management systems ISO 14001 and EMAS regulations.

- Environmental management in construction works.

- Practical application of environmental legislation.

- Sewage, waste and contaminated soil.

- Management of sewage, waste and contaminated soil.

- Management of air, noise and odour contamination.

RESEARCH AND DEVELOPMENT

During 2014 the various lines of business have undertaken new R&D&I projects aimed and offering

new solutions in international markets that maintain the Company's competitive level.

In this effort to retain a leading technological position the investment in R&D work has been

considerable, in line with the average for recent years which stands at around 1% of consolidated

revenue.

Worthy of note are the following projects carried out in 2014, which reflect the broad involvement of

the lines of business, such as:

DURO FELGUERA, S.A.


90

- The Mining line of business has commenced studies to develop processes for taking advantage

of old mines that allow the extraction of minerals that are highly appreciated in the electronics

industry.

- In the Group's TIC line the main actions have focused on developing improvements in the

electrical generator incorporated into the Eurofighter plane and management systems for

electrical networks, as well as the development of new encrypters and IP voice communication.

To carry out these projects, DF is mainly reliant on its highly qualified professional team. Additionally,

in its search for the best possible solutions, it collaborates with various universities and technology

centres.

TRADING IN TREASURY SHARES

At 31 December 2014 the total volume of treasury shares stands at 10%, i.e. 16,000,000 shares.

AVERAGE SUPPLIER PAYMENT PERIOD

As explained in Note 18, there are no balances with suppliers and creditors worthy of mention that

exceed the maximum payment period stipulated in the relevant legislation.

SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

On 12 February 2015 the 33rd Exchange Agreement approved by the Venezuelan Government came

into effect, through which a new mechanism has been created known as the Marginal Currency

System (SIMADI), allowing cash and securities in foreign currency to be traded. The SIMADI allows

both individuals and businesses to buy and sell foreign currency with fewer restrictions than in the

other currency allocation systems existing in the country. In addition, the SICADI and SICAD II

systems have been unified and therefore three exchange rates coexist: CENCOEX, SICAD and

SIMADI.

The SIMADI offers a daily variable average price defined by supply and demand. The price of the first

auction on 12 February 2015 was 170 bolivars per dollar.

The Company will evaluate the possible effects of the new exchange rate on the basis of its evolution

and liquidity during 2015. However, given the low exposure to the bolivar (Note 3.19c) is not expected

that this new exchange rate could have significant effects on the Group's key figures in 2015.

ANNUAL CORPORATE GOVERNANCE REPORT

The Annual Corporate Governance Report for 2014 is attached hereto and forms an integral part

hereof, as provided in Article 526 of the Spanish Companies Act 2010.

DURO FELGUERA, S.A.


91

OTHER RELEVANT INFORMATION

Stock market data

The Company's shares declined by 32% during the year 2014. However, this negative behaviour is

being corrected during 2015 with a share price at the date of these annual accounts of €4.26 per

share, representing a revaluation of 27% in the year to date and a market capitalization of €681.6

million.

2014 2013

Closing price 3.35 4.90

Performance in the year -31.63% 1.87% Maximum price for the year (€) 5.30 5.53 Date of maximum 20/01/2014 25/01/2013 Minimum price for the year (€) 3.35 4.50 Date of minimum 31/12/2014 27/11/2013 Volume traded (thousand shares) 95,770 183,664 Cash (thousand euro) 428,528 936,508 No of shares (x1000) 160,000 160,000 Market capitalization at year end (thousand euro) 536,000 784,000

Earnings per diluted share reported at the end of the consolidated income statement represent a

return of 6.73% on the initial price for the year (11.21% in 2013). The yield on dividends received

during the year provides shareholders with a return of 4.90% (6.65% in 2013) on the initial quoted

price.

DURO FELGUERA, S.A.


92

Dividend policy

In 2014 the parent company has paid four interim dividends of €0.06 per share. At present, an

attractive level of profitability for shareholders is expected to be maintained.

In the last five years DF's payout has been above the average for companies in the continuous

market, fulfilling one of the Group's objectives of maximising shareholder returns.

Fiscal year 2008 Fiscal year 2009 Fiscal year 2010 Fiscal year 2011 Fiscal year 2012 Fiscal year 2013

Oil and energy 68,17 45,07 26,89 36,40 30,43 60,29

Basic materials, industry and construction 38,86 28,09 34,75 40,39 57,12 44,22

Consumer goods 50,58 50,32 44,68 54,31 48,76 57,76

Consumer services 51,65 54,88 86,15 69,67 47,78 65,95

Financial and real state services 47,47 44,05 36,80 42,37 57,26 25,52

Technology and telecommunications 60,16 67,04 63,80 103,38 40,53 6,28

TOTAL 55,43 47,03 40,86 53,45 43,51 37,12

2008 2009 2010 2011 2012 2013

Duro Felguera (payout %) 65,59 65,00 60,29 70,64 55,21 46,00

Note: Data show figures of domestic companies on SIBE

65,5965,00

60,29

70,64

55,21

46,00

55,43

47,03

40,86

53,45

43,51

37,12

2008 2009 2010 2011 2012 2013

Duro Felguera (payout %) Media Mercado Continuo %

1

APPENDIX I


FOR LISTED COMPANIES

IDENTIFICATION OF THE ISSUER

END OF THE YEAR OF REFERENCE 31/12/2014

TAX ID No. A-28004026

COMPANY NAME

DURO FELGUERA, S.A.

REGISTERED ADDRESS

ADA BYRON, 90 - 33203 GIJÓN (ASTURIAS)

2


FOR LISTED COMPANIES

A OWNERSHIP STRUCTURE

A.1 Complete the following table on the company’s capital:

Date of the latest modification

Share capital (€) Number of shares Number of

voting rights

05/05/2010 80,000,000.00 160,000,000 160,000,000

State whether there are different classes of shares with different associated rights:

Y e s N o X

A.2 Give details on the direct and indirect holders of significant interest in your company at the year-end,

excluding Directors:

Name of the shareholder

Number of direct

voting rights

Number of indirect

voting rights

% of total voting rights

MR JUAN GONZALO ALVAREZ ARROJO 0 39,017,243 24.39%

MR RAMIRO ARIAS LOPEZ 0 15,673,716 9.80%

ONCHENA, S.L. 8,059,857 0 5.04%

Name of the indirect shareholder

Through: Name of the direct shareholder

Number of voting rights

MR JUAN GONZALO ALVAREZ ARROJO INVERSIONES SOMIO, S.L. 39,017,243

MR RAMIRO ARIAS LOPEZ INVERSIONES RÍO MAGDALENA, S.L. 15,673,716

Indicate the most significant movements in the shareholder structure during the year:

Name of the shareholder Transaction

date Transaction description

MR JOSE ANTONIO AGUILERA IZQUIERDO 20/06/2014 The interest in share capital

decreased by 3%.

A.3 Complete the following tables on members of the Company's Board of Directors that hold voting

shares in the Company:

Name of the Director

Number of direct

voting rights

Number of indirect

voting rights

% of total voting rights

MR ANGEL ANTONIO DEL VALLE SUAREZ 72,913 45,896 0.07%

MR FRANCISCO JAVIER VALERO ARTOLA 19,371 0 0.01%

MR CARLOS SOLCHAGA CATALÁN 1,000 0 0.00%

INVERSIONES RÍO MAGDALENA, S.L. 15,673,716 0 9.80%

INVERSIONES EL PILES, S.L. 10,974 39,028,217 24.40%

MR ACACIO FAUSTINO RODRIGUEZ GARCIA 33,704 0 0.02%

MR FRANCISCO JAVIER GONZÁLEZ CANGA 2,400 0 0.00%

3

Name of the indirect shareholder

Through: Name of the direct shareholder

Number of voting rights

MR ANGEL ANTONIO DEL VALLE SUAREZ MRS BEATRIZ DEL VALLE ÁLVAREZ 45,896

INVERSIONES EL PILES, S.L. INVERSIONES SOMIO, S.L. 39,028,217

% total of voting rights held by the Board of Directors 34.30%

Complete the following tables on Directors with stock options in the Company:

A.4 Indicate family, commercial, contractual or corporate relationships among significant shareholders

known to the company, if any, except any that are insignificant and those deriving from ordinary

commercial business:

A.5 Indicate commercial, contractual or corporate relationships between significant shareholders and the

company and/or its group, if any, except any that are insignificant and those deriving from ordinary

commercial business:

A.6 Indicate any shareholders’ agreements of which the Company has been notified in pursuance of

Articles 530 and 531 of the Spanish Companies Act 2010. If any, briefly describe them and list the

shareholders bound by the agreement:

Y e s N o X

Indicate whether or not the company knows of the existence of any shareholder agreements

concerning shares. Describe briefly, if any:

Y e s N o X

If during the year there have been any modifications or breaches of those pacts or agreements or

agreed actions, expressly indicate:

There has been no modification.

A.7 Indicate any individuals or entities that exercise or may exercise control over the Company in

pursuance of Article 4 of the Stock Market Act. If so, please identify:

Y e s N o X

Observations

A.8 Complete the following tables on the Company’s treasury shares:

At the year-end:

Number of direct shares Number of indirect shares (*) % total of share capital

16,000,000 0 10.00%

(*) Through:

4

List significant changes during the year, in accordance with the provisions of Royal Decree 1362/2007:

A.9 Indicate the terms and conditions of the authorization granted by the General Meeting to the Board to

issue, rebuy or transfer treasury shares.

The general meeting authorised the Board of Directors to acquire treasury shares up to the maximum amount permitted by legislation

in force and for 5 years as from the date the general meeting was held on 19 June 2014.

See section H.1 regarding General Meeting Resolutions.

A.10 State if there is any restriction to the transfer of securities and/or any restriction to voting rights. In

particular, report the existence of any type of restrictions that make it difficult to take control of the company

by acquiring shares in the market.

Y e s N o X

A.11 Indicate whether the General Shareholders’ Meeting has adopted measures to neutralize a takeover

bid under Law 6/2007.

Y e s N o X

If so, explain the measures adopted and the terms under which the restrictions would become

ineffective:

A.12 Indicate if the company has issued shares that are not traded on a regulated EU market.

Y e s N o X

Indicate, as the case may be, the different types of shares, and for each type, the rights and obligations

they confer.

B GENERAL MEETING

B.1 Indicate whether there are any differences between the quorums for General Meetings and the

minimums stipulated in the Spanish Companies Act 2010 and, if appropriate, explain.

Y e s N o X

B.2 Indicate and explain, if appropriate, if there are any differences between the system used for adopting

corporate resolutions and the system stipulated in the Spanish Companies Act 2010:

Y e s N o X

Describe how it differs from the system contemplated in the Spanish Companies Act.

B.3 Indicate the rules applicable to changes in the Company's bylaws. In particular, report any majorities

foreseen for making changes in the bylaws and any rules established for safeguarding shareholder

rights when changing bylaws.

5

Those that are established in the Spanish Companies Act 2010.

B.4 Provide details of attendance records at General Meetings held during the year to which this report

refers, as well as for last year:

Attendance information

Date of the General Meeting

% physical presence

%

represented

% remote voting Total

Electronic votes Other

25/04/2013 21.77% 62.91% 0.00% 0.00% 84.68%

19/06/2014 45.57% 38.31% 0.00% 0.00% 83.88%

B. 5 State whether any restrictions are established in the Articles of Association requiring a minimum

number of shares to attend a General Meeting:

Yes X No

Number of shares necessary to attend the General Meeting 400

B.6 Indicate if any decisions have been made to submit any resolutions to made structural changes to the

company (“subsidiarisation”, sale-acquisition of essential operating assets, transactions equivalent to

the liquidation of the company, etc.) to shareholders at a general meeting, even if not expressly

required by commercial law.

Y e s N o X

B.7 Indicate the address and manner of accessing corporate governance and other general meeting

information that must be made available to shareholders on the Company's website.

www.dfdurofelguera.com

The website has a section called "Investor's Area". A drop-down menu provides access to the section "Corporate Governance", where

the reports relating to past years may be found.

C STRUCTURE OF THE COMPANY'S MANAGEMENT

C.1 Board of Directors

C.1.1 State the maximum and minimum numbers of Directors stipulated in the bylaws:

Maximum Number of Directors 12

Minimum Number of Directors 6

C.1.2 Complete the following table with details of the members of the Board:

Name of the Director Representative

Position on the Board

Date of first appointment

Date of last

appointment

Election procedure

MR ANGEL ANTONIO DEL

VALLE SUAREZ CHAIRMAN 23/06/2011 23/06/2011 GENERAL MEETING

RESOLUTION

6


Representative Position on the Board

Date of first appointment

Date of last

appointment

Election procedure

MR FRANCISCO JAVIER VALERO ARTOLA

DIRECTOR 23/06/2011 23/06/2011 GENERAL MEETING

RESOLUTION

MR CARLOS

SOLCHAGA CATALÁN DIRECTOR 23/06/2011 23/06/2011 GENERAL MEETING

RESOLUTION

MR ACACIO FAUSTINO

RODRIGUEZ GARCIA DIRECTOR 25/05/2005 23/06/2011 GENERAL MEETING

RESOLUTION

INVERSIONES

SOMIO, S.L. VICE-CHAIRMAN 29/05/2003 23/06/2011 GENERAL MEETING

RESOLUTION

INVERSIONES RÍO

MAGDALENA, S.L. DIRECTOR 23/06/2011 23/06/2011 GENERAL MEETING

RESOLUTION

INVERSIONES EL PILES,

S.L. DIRECTOR 26/06/2003 23/06/2011 GENERAL MEETING

RESOLUTION

MR FRANCISCO JAVIER GONZÁLEZ CANGA

DIRECTOR 19/06/2014 19/06/2014 GENERAL MEETING

RESOLUTION

Total Number of Directors 8

Indicate the Directors that have left the Board of Directors during the reporting period:


Status of the Director at the

time of leaving

Exit date

CONSTRUCCIONES OBRAS INTEGRALES NORTEÑAS, S.L. Other External director

12/05/2014

RESIDENCIAL VEGASOL, S.L. Other External director

12/05/2014

C.1.3 Complete the following tables on the types of Board Members:

EXECUTIVE DIRECTORS


Committee reporting the Director's appointment

Position within the Company's hierarchy

MR ANGEL ANTONIO DEL VALLE

SUAREZ

APPOINTMENTS AND

COMPENSATION COMMITTEE CHAIRMAN

Total Number of executive directors 1

% of total directors 12.50%

OTHER EXTERNAL DIRECTORS



Name of the significant

shareholder represented or

that proposed the

appointment

INVERSIONES SOMIO, S.L. APPOINTMENTS AND

COMPENSATION COMMITTEE INVERSIONES SOMIO, S.L.

INVERSIONES RÍO MAGDALENA, S.L. APPOINTMENTS AND

COMPENSATION COMMITTEE

CONSTRUCCIONES TERMORACAMA, S.L.

7




shareholder represented or

that proposed the

appointment

INVERSIONES EL PILES, S.L. APPOINTMENTS AND COMPENSATION

MR JUAN GONZALO ALVAREZ

ARROJO

Total Number of proprietary directors 3

% of total directors 37.50%

EXTERNAL INDEPENDENT DIRECTORS

Name of the Director:

MR FRANCISCO JAVIER VALERO ARTOLA

Profile:

Qualification:

- Degree in Law and Economics from Universidad Complutense de Madrid.

- Commercial Specialist and State Economist. State government (1975-1985)

- Directorate General for Foreign Trade.

- Economic and Commercial Advisor. Embassy in Basilia.

- Chief of Staff Secretary of State for Commerce. Public Company (1991-2004)

- Commercial Deputy Director INI (1985)

- Chairman and CEO of CESCE.

- Director of the Foreign Trade Institute ICEX

Private Sector

- Ex-Director General of Export Control.

- Ex-Director of Telepizza.

- Ex-Director of Aon Gil y Carvajal.

- Ex-Director of International Insurer's Consortium.

- Ex-Director of Nucleo de Comunicaciones y Control

- Ex-General Director of Caja Madrid representing the Exporters and Investors Club.

Currently:

- Chairman of Alten Energias Renovables.

- Vice-Chairman of Globaltec Ingeniería.

- Director of Asfaltomeros.

- Director of Pierre.

- Member of the Advisory Board at Aon.


MR CARLOS SOLCHAGA CATALÁN

Profile:

Degree in Economics and Business. He engaged in post-graduate studies at the Alfred P. Sloan School of

Business at the Massachusetts Institute of Technology (MIT). He started his professional career in the

Analysis Service at the Bank of Spain, where he specialized in the area of International Economy. Later he

was the Subdirector of the Analysis Service at the National Industrial Institute (INI) and subsequently, the

Director of Analysis Services and a Chairman's Advisor at Banco de Vizcaya.

Between 1980 and 1994 he was a member of Parliament through the Socialist Group and was its

spokesman in 1993-1994. He was the Minister of Industry and Energy (1982-1985) and the Minister of

Finance (1985-1993) in the governments led by Felipe González.

During his time at the Ministry of Industry and Energy he carried out a significant industrial reconversion

given the serious crisis that was affecting the Spanish industrial sector. As the Minister of Finance he

consolidated a modern Public Treasury and modernized the Spanish financial system, which was

essential given the entry of the Spanish economy first into the European Monetary System and then

Economic and Monetary Union. He was also the Chairman of the International Monetary Fund Interim

Committee (1991-1993).

8

He is currently an International Consultant and Partner-Director of Solchaga Recio Asociados

(Consultancy), Vice-Chairman of Museo Nacional Centro de Arte Reina Sofía, Chairman of the

Fundación Arquitectura y Sociedad, Chairman of the Advisory Board for the firm Roca y Junyent,

Member of the Boards of Directors of Zeltia SA and Cie Automotive SA, Member of the Scientific Council

of Real Instituto Elcano as well as other Advisory Boards and Foundations.

- . Either the Government of Nicaragua with respect to the restructuring of foreign debt (BID Program-

1995)-Advises the governments that are members of the BECIE regarding the restructuring of the Bank

(BID Program-1996)-Macroeconomic adviser for the Government of the Dominican Republic during the

mandate of the President Leonel Fernández (Programa BID-1996-2000).

- Advisor to the Secretary of Finance and Public Credit in Mexico regarding the reform of the Public

Banking sector (BID Program BID-1999)

- Advisor regarding the reform of the Tax Administration for the Argentinian Government - 2001

- Advisor to the Government and Parliament of Costa Rica regarding tax reform (BID Program-2003)


MR ACACIO FAUSTINO RODRIGUEZ GARCIA

Profile:

Industrial Engineer, currently holding the position of EU Engineer and consultant for

industrial matters.

He was previously the CEO of C.S.I. Corporación Siderúrgica,

CEO of Pegaso, Chairman of Fuitjisu España and Financial Auditor for Ford España.

He is also a member of the Boards of Directors of:

- DOGI INTERNATIONAL FABRICS

- TOWNSEND MINERALS METALS

- UNILOG CONSULTANTS

Total number of independent directors

3

% of total Board 37.50%

State whether any Director classified as independent receives any amount or benefit from the

company, or the group of companies, for any reason other than compensation for being a

Director, or whether the Director maintains or has maintained, over the past year, a business

relationship with the company or any company pertaining to the same group, whether on his/her

own behalf or as a significant shareholder, Director or senior executive of a company that

maintains or has maintained such a relationship.

None.

If appropriate, include a statement from the Board regarding the reasons for which it considers

that the Director concerned may carry out his/her duties as an independent Director.

OTHER EXTERNAL DIRECTORS

Name of the Director Committee reporting

the Director's appointment

MR FRANCISCO JAVIER GONZÁLEZ CANGA APPOINTMENTS AND COMPENSATION COMMITTEE

Total number of other external Directors 1

Total percent of the Board 12.50%

List the reasons why they cannot be considered to be proprietary or independent directors and

their associations with either the company or executives, or shareholders:

9

Name of the Director: MR FRANCISCO JAVIER GONZÁLEZ CANGA

Company, executive or shareholder with which the association is maintained:

MR FRANCISCO JAVIER GONZÁLEZ CANGA

Reasons:

Company employee less than three years ago.

State any changes that may have arisen during the period in the type of each Director:

C.1.4 Complete the following table with the information relating to the number of female Directors over

the past 4 years, as well as the nature of those Directors:

Number of female Directors % of total Directors of each type

Year

2014

Year

2013

Year

2012

Year

2011

Year

2014

Year

2013

Year

2012

Year

2011

Executive 0 0 0 0 0.00% 0.00% 0.00% 0.00%

Proprietary 0 0 0 0 0.00% 0.00% 0.00% 0.00%

Independent 0 0 0 0 0.00% 0.00% 0.00% 0.00%

Other external Directors 0 0 0 0 0.00% 0.00% 0.00% 0.00%

Total 0 0 0 0 0.00% 0.00% 0.00% 0.00%

C.1.5 Explain any measures that have been adopted to ensure that the Board of Directors has a

number of women that allows for a balance between men and women.

Explanation of the measures

There are currently no initiatives.

C.1.6 Explain any measures that have been adopted by the Nominations Committee so that selection

procedures do not give rise to implicit barriers to the selection of female Directors, and so that

the Company deliberately seeks and includes female candidates that meet the required

professional profile:

Explanation of the measures

There are no selection procedures that are a barrier or could be a barrier to the selection of female Directors. When seeking

a certain professional profile the Company takes into consideration the professional profile and only evaluates the profile

that is most adequate to the business' interests, without taking into account the gender of the candidate.

When despite any measures that have been adopted there are few or no female Directors,

please explain the reasons:

Explanation of the reasons

There are no female Directors at the Company and the selection procedures do not give rise to any implicit barriers to the

appointment of female Directors. In addition, it must be taken into account that of the 8 members of the Board of Directors, 3

are legal persons and therefore their governing bodies are responsible for appointing their natural person representatives.

10

C.1.7 Explain the manner in which significant shareholdings are represented on the Board of

Directors.

The shareholder Inversiones Somió, S.L. is a company Director and Vice-Chairman and also controls a further two

Directorships, Inversiones el Piles, S.L, member, and Mr. Angel A. del Valle Suárez, Chairman and CEO. Inversiones Río

Magdalena, S.L. is a member of the Board of Directors.

C.1.8. Explain why institutional directors have been appointed at the proposal of shareholders with

less than 5% interest in the Company, if appropriate:

Indicate whether any formal requests for a presence on the Board have not been met from

shareholders with an interest equal to or greater than that of others at whose request

institutional directors have been appointed. If any, explain the reasons why not met:

Y e s N o X

C.1.9 Indicate whether any director has left the position before the end of his/her term, whether he/she

explained the reasons for leaving the Board and how; if done in a letter addressed to the entire

Board, explain at least the reasons stated therein:


RESIDENCIAL VEGASOL, S.L.

Reason for exit:

Resignation was explained as due to the decline in the interest held to below 3% of share capital and was

interested in fully divesting.


CONSTRUCCIONES OBRAS INTEGRALES NORTEÑAS, S.L.

Reason for exit:

Resignation was explained as due to having been appointed Director at the proposal of the then

proprietary Director Residencial Vegasol, S.L., which at the resignation date ceased to be a proprietary

Director and also resigned.

C. 1.10 Indicate the powers delegated to the Managing Director(s), if any:


MR ANGEL ANTONIO DEL VALLE SUAREZ

Brief description:

All powers that may be delegated in accordance with the law and the bylaws.

11

C.1.11 Name the Board members, if any, who are also directors or executives of other companies in

the same group as the listed company:


Name of the Group company

Office

MR ANGEL ANTONIO DEL VALLE

SUAREZ

FELGUERA IHI. S.A. Representative of Duro Felguera on the

Board of Directors

C.1.12 Name company directors, if any, on the Boards of Directors of non-group companies listed on

Spanish stock exchanges, insofar as the company has been notified:


Name of the Group company

Office

MR CARLOS SOLCHAGA CATALÁN CIE AUTOMOTIVE, S.A. DIRECTOR

MR CARLOS SOLCHAGA CATALÁN ZELTIA S.A. DIRECTOR

C.1.13 Indicate and, if appropriate, explain whether the company has established rules on the number

of boards on which its Directors may sit:

Y e s N o X

C.1.14 Indicate the general policies and strategies of the company reserved for approval by the full

Board:

Yes No

The investment and financing policy X The definition of the structure of the group of companies X The corporate governance policy X The corporate social responsibility policy X The strategic or business plan, as well as the management objectives and annual budgets X The compensation policy and evaluation of the performance of senior executives X The risk control and management policy, as well as regular monitoring of internal information and

control systems X

The dividend policy, as well as the treasury share portfolio and, in particular, its limits X

C.1.15 Indicate the total compensation for the Board of Directors:

Board compensation (thousand euro) 2,187

Amount of the total compensation for pension rights accumulated by

Directors (thousand euro)

0

Total Board compensation (thousand euro) 2,187

C.1.16 Identify the members of senior management who are not Executive Directors and indicate the

aggregate compensation accrued to them during the year:

Name Office

MR JESUS SALMERÓN UNTURBE DIRECTOR OF LEGAL COUNSEL

12

Name Office

MR JUAN JOSÉ HERRERO RODRÍGUEZ DIRECTOR OF DF SERVICES

MR ANDRES GIRALDO ALVAREZ DIRECTOR OF CORPORATE MATTERS

MR RAFAEL MURILLO QUIRÓS DIRECTOR OF DF ENERGY

MR JOSÉ LUIS FERNÁNDEZ GETINO DIRECTOR OF SALES AND MARKETING

MR FERNANDO LÓPEZ GONZÁLEZ DIRECTOR OF DF MANUFACTURING & OTHER

ACTIVITIES

MR JUAN OUTEIRAL VIANA DIRECTOR OF HUMAN RESOURCES

MR ÁNGEL GUIJARRO CASTRO DIRECTOR OF DF OIL & GAS

MR PEDRO PEON TAMARGO DIRECTOR OF FINANCES

MR ROBERTO PEREZ LOPEZ DIRECTOR OF DF MINING & HANDLING

MR EMILIO SEOANE FIDALGO DIRECTOR OF PURCHASING

MR FRANCISCO ALAEZ DIEZ DIRECTOR OF ENGINEERING AND TIC

Total senior management compensation (thousand euro) 2,842

C.1.17 Name any Board Members who are also directors or executives of companies holding

significant interest in the listed company and/or companies pertaining to its Group:

Describe any significant relationships other than those contemplated in the previous section

between Board Members and significant shareholders and/or companies pertaining to their

Group:

C.1.18 Indicate whether any modifications have been made during the year to the Board of Directors’

Regulations:

Y e s N o X

C.1.19 Describe the procedures for selecting, appointing, re-electing, evaluating and removing

Directors. List the competent bodies, the processes to be followed and the criteria to be

applied in each of the procedures.

Shareholders at a General Meeting appoint and re-elect Directors, and it is the competent body for executing these

resolutions.

The Board of Directors is empowered to cover any vacancy arising on the Board for the term between General Meetings,

and the Director directly appointed by the Board must be ratified by shareholders at the first General Meeting that is

subsequently held.

There are no express procedures for evaluating Directors, except for those set out in Nominations Committee

Regulations.

Shareholders at a General Meeting remove Directors, and it is the competent body for executing these resolutions.

C.1.20 Indicate whether the Board of Directors has evaluated its activity during the year:

Yes X No

If so, explain to what extent the self-evaluation has given rise to important changes with

respect to the Board's internal organization and the procedures that are applicable to its

activities:

Description of changes

The self-evaluation did not give rise to changes.

13

C.1.21 Indicate the cases in which Directors are required to resign.

Only in the cases established by law.

C.1.22 Explain whether the Chairman of the Board is the Chief Executive Officer of the Company. If

so, state what measures have been adopted to limit the risks of one single person

accumulating powers:

Yes X No

Measures to limit risks

The chairman of the Board of Directors and CEO is subject to the direct monthly control of the Board of Directors.

Indicate and, if appropriate, explain whether rules have been established to enable one of the

independent directors to request the calling of the Board for the inclusion of new items on the

agenda, to coordinate and echo the concerns of external Directors and to direct evaluation by the

Board of Directors.

Y e s N o X

C.1.23 Are special majorities differing from those stipulated by Law required for any type of decision?:

Y e s N o X

Describe any differences.

C.1.24 Explain whether or not there are any specific requirements, other than those established for

Directors, to be appointed Chairman of the Board of Directors:

Y e s N o X

C.1.25 Indicate whether the Chairman has a casting vote:

Yes X No

Areas in which there is a casting vote

In all matters under discussion

C.1.26 Indicate whether the bylaws or the Board Regulations establish any age limit for Directors:

Y e s N o X

C.1.27 Indicate whether the bylaws or the Board Regulations establish any limit on the term of office

for Independent Directors, apart from that established by law:

14

Y e s N o X

C.1.28 Indicate whether the bylaws or the Board of Directors' Regulations establish specific rules for

delegating votes within the Board of Directors, the manner in which it is done and, in particular,

the maximum number of delegations that a Director may make, as well as whether there is an

obligation to delegate to a Director of the same type. Briefly provide details of any such rules.

Only express and written delegation to the representative.

C.1.29 State the number of meetings held by the Board of Directors during the year. In addition,

indicate, if appropriate, how many times the Board has met without the Chairman: Attendance

is deemed to include any proxies made with specific instructions.

Number of Board meetings 15

Number of Board meetings held without the Chairman 0

Indicate the number of meetings held during the year by the various Board Committees:

Committee No. of meetings

APPOINTMENTS AND COMPENSATION COMMITTEE 3

AUDIT COMMITTEE 6

C.1.30 State the number of meetings held by the Board of Directors during the year with all members

being in attendance. Attendance is deemed to include any proxies made with specific

instructions:

Attendance of Directors 3

% Number of meetings attended compared with the total votes cast during the year 81.60%

C.1.31 Indicate whether the individual and consolidated annual accounts are certified prior to their

presentation to the Board for approval:

Y e s N o X

If appropriate, name the person(s) who certify the Company’s individual and consolidated

annual accounts before they are approved by the Board:

C.1.32 Explain the mechanisms, if any, established by the Board to avoid a qualified audit report on

the individual and consolidated annual accounts from being presented to shareholders at a

General Meeting.

The Audit Committee has the duty of analysing any incidents as well as ensuring that the financial statements reflect a true and

fair view of the Company and its subsidiaries (consolidated). The chairman of the Audit Committee reports all resolutions and

decisions to the Board of Directors, and the latter is the ultimate decision-taking body. Throughout the year the Audit

Committee and the Director of Internal Audit hold regular meetings

15

with the auditors in order to collaborate with them to gain better knowledge and External Audit makes visits to the places at

which the main projects are executed.

C.1.33 Is the Secretary to the Board a Director?

Y e s N o X

C.1.34 Explain the procedures for appointing and removing the Secretary to the Board, indicating

whether or not a report is issued by the Nominations Committee and whether or not the person

is approved by the full Board.

Appointments and removal procedure

There are no appointment and removal procedures other than those established by law and the bylaws. The

Appointments Committee reported the appointment proposal and it was approved by the full Board of Directors.

Yes No

Does the Nominations Committee report the nomination? X Does the Nominations Committee report removal? X Does the full Board approve the nomination? X Does the full Board approve the removal? X

Does the Secretary to the Board have the responsibility of specifically monitoring Good

Governance recommendations?

Yes X No

Observations

The Secretary is also the Legal Advisor for the Board of Directors and the Board of Directors' Regulations specify that one

of his duties is to ensure compliance with good governance recommendations.

C.1.35 Describe any mechanisms established by the Company to preserve the independence of the

external auditor, financial analysts, investment banks and rating agencies.

The Audit Committee requests the auditors provide annual written confirmation of their independence with respect to the

company or directly or indirectly related companies, as well as information regarding any additional services of any kind

rendered to those companies by the auditors or associated companies or persons, in accordance with the provisions of Law

12/2010 (30 June) on Audits. In order to exercise better control over the independence of the auditors, any other work other

than the legal audit that is requested from the auditors must be previously approved by the Audit Committee.

C.1.36 Indicate whether or not the Company has changed its external auditor during the year. If so,

identify the entering and exiting auditor:

Y e s N o X

If there have been any disagreements with the exiting auditor, explain their content:

16

C.1.37 State whether or not the audit firm does any work for the Company and/or its Group other than

standard audit work and, if so, indicate the amount of the fees received for such work

and the percentage it represents of the total fees invoiced to the Company and/or its group:

Yes X No

Company Group Total

Amount of work other than standard audit work (thousand euros) 487 163 650

Amount of work other than standard audit work/Total amount invoiced by

the audit firm (in %)

71.94% 27.26% 50.98%

C.1.38 State whether or not the audit report on the Annual Accounts for the previous year contains

any qualifications or reservations. If so, indicate the reasons given by the Chairman of the

Audit Committee to explain the content and scope of those qualifications or reservations.

Y e s N o X

C.1.39 State the number of consecutive years that the current audit firm has audited the Company’s

annual accounts and/or its group. In addition, indicate the ratio of the number of years audited

by the current auditors to the total number of years that the annual accounts have been

audited:

Company Group

Number of consecutive years 16 16

Number of years audited by the current audit firm/Number of years that the company has

been audited (in %)

61.54% 61.54%

C.1.40 Indicate, and provide details, if there is an established procedure for Directors to receive

external advice:

Yes X No

Details of the procedure

In order to obtain assistance with their duties, Independent Directors and Board Committees

may request the hiring of legal, accounting, financial or other expert advisors.

Any such appointment must necessarily relate to specific problems of certain importance and complexity that arise during the

performance of their duties.

A request to hire external advisors must be presented to the Chairman of the Company.

C.1.41 Indicate, providing details as necessary, if there is an established procedure for Directors to

obtain any information they may need to prepare for the Meetings of the governing bodies

sufficiently in advance:

Yes X No

Details of the procedure

During the final meeting of the year, the Board of Directors approves a meeting schedule for the following year and the

monthly meeting dates are established.

Before each monthly Board meeting and at least one week in advance each Director is provided with financial information

regarding the parent company and the rest of the

17

subsidiaries (consolidated group) for the immediately preceding month together with detailed information regarding each of

the items on the agenda and the proposals that will be made. The monthly information includes at least the following: The

income statements for the individual company, the consolidated group and each of the subsidiaries, with comparative

information from the preceding year, contracting information and a comparison with the budget, cash report and projections

reflecting net cash, information regarding the number of employees, their evolution and distribution by area, etc., events and

incidents that may have an impact on the profits of the company and the group.

C.1.42 Indicate, providing details if appropriate, if the Company has established rules requiring

Directors to report and, if necessary, resigned in any cases that could be detrimental to the

Company’s reputation:

Y e s N o X

C.1.43 Indicate whether the Company has been notified by any Board Member that he/she has been

charged with, or is being tried for, any of the crimes contemplated under Article 213 of the

Spanish Companies Act 2010:

Y e s N o X

Indicate whether or not the Board of Directors has analysed the case. If the answer is yes,

provide a detailed explanation of the decision taken regarding whether or not the Director shall

continue in the post or, if appropriate, explain the action taken by the Board of Directors up to

the date of this report or any that it plans to take.

C.1.44 Provide details of any significant resolutions adopted by the Company coming into force or

modified or concluded in the event of a change in control of the company due to a public offer

of acquisition, and its effects.

No such resolutions were adopted.

C.1.45 Report, and provide details of, all agreements between the company and its senior management

or employees who have indemnities or golden parachute clauses when they leave the company

or are dismissed unlawfully or if the contractual relationship terminates as a result of an offer of

acquisition.

Number of beneficiaries: 2

Type of beneficiary:

Senior Management

Description of the agreement:

In one case the relevant indemnity must be increased by one year's salary. In another case one year's

salary is added to the indemnity but this amount progressively decreases by €50,000 every calendar

year.

Indicate whether these contracts must be reported and/or approved by the governing bodies at

the company or the group:

Board of Directors General Meeting

Body authorising the clauses Yes No

18

Yes No Is the General Meeting informed of the clauses? X

C.2 Board of Directors’ Committees

C.2.1 Provide details of all Board Committees, their members and the proportion of Institutional

Directors and Independent Directors pertaining to the committees:

APPOINTMENTS AND COMPENSATION COMMITTEE

Name Office Type

MR CARLOS SOLCHAGA CATALÁN CHAIRMAN Independent

MR FRANCISCO JAVIER GONZÁLEZ CANGA MEMBER Other external

director

INVERSIONES RÍO MAGDALENA, S.L. MEMBER Institutional

MR FRANCISCO JAVIER VALERO ARTOLA MEMBER Independent

% of executive directors 0.00%

% of institutional directors 25.00%

% of independent directors 50.00%

% of other external directors 25.00%

AUDIT COMMITTEE

Name Office Type

MR ACACIO FAUSTINO RODRIGUEZ GARCIA CHAIR Independent

MR CARLOS SOLCHAGA CATALÁN MEMBER Independent

MR FRANCISCO JAVIER GONZÁLEZ CANGA MEMBER Other external

director






CONTRACTS, INVESTMENTS AND PROJECTS

Name Office Type

MR ANGEL ANTONIO DEL VALLE SUAREZ CHAIR Executive


INVERSIONES RÍO MAGDALENA, S.L. MEMBER Institutional

MR FRANCISCO JAVIER GONZÁLEZ CANGA MEMBER Other external director





19

C.2.2 Complete the following table with information relating to the number of female Directors forming part of Board Committees over the past four years:

Number of female Directors

2014 2013 2012 2011

Number % Number % Number % Number %


0 0.00% 0 0.00% 0 0.00% 0 0.00%

AUDIT COMMITTEE 0 0.00% 0 0.00% 0 0.00% 0 0.00%

CONTRACTS,

INVESTMENTS AND PROJECTS

0 0.00% 0 0.00% 0 0.00% 0 0.00%

C.2.3 Indicate whether or not the following duties correspond to the Audit Committee:

Yes No

Supervise the preparation and integrity of the financial information relating to the company and, if

appropriate, the group, reviewing compliance with regulatory requirements, the adequate definition of

the scope of consolidation and the proper application of accounting criteria.

X

Regularly review the internal control and risk management system so that the main risks are

identified, managed and adequately reported. X

Ensure the independence and effectiveness of the internal audit function, propose the selection,

appointment, re-election and removal of the person responsible for the internal audit service, propose

the budget for this service, receive regular information regarding its activities and verify that senior

management takes into account the conclusions and recommendation of its reports.

X

Establish and supervise a mechanism that allows employees to confidentially and, if deemed

appropriate, anonymously, report any potentially important irregularity, particularly those of a

financial and accounting nature, that they may observe within the company. X

Make recommendations to the Board for the selection, appointment, re-election and removal of

the external auditor, and the terms and conditions of the engagement. X

Regularly receive information from the external auditor regarding the audit plan and the results of its

execution, and verify that senior management takes its recommendations into account. X

Ensure the independence of the external auditor X

C.2.4 Describe the rules of organization and procedure, and responsibilities attributed to each Board

Committee.


The Committee will be formed by a minimum of three and a maximum of five members of the Board of Directors,

designated by a majority of its members. In the events an Internal Executive Director is appointed to a Committee,

that Director may not participate or vote on any matters before the Committee that either personally affect the Director or,

if appropriate, the designated representative.

Appointments are for six-year terms and, in any event, the same term for which each member of the Committee has been

appointed to the Board, and they may be re-elected as many times as deemed advisable provided they remain on the Board

of Directors.

The Chairman will be elected from among Committee members for 6-year terms and, in any event, for the maximum

remaining term for which they have been appointed as a member of the Committee. The Committee will appoint a non-voting

Secretary who does not have to be a Director and may also appoint a non-voting Legal Advisor, who must also be the Legal

Advisor for the Board of Directors. The Committee will also have a Vice-Chairman, who will be the Vice-Chairman of the

Board of Directors.

The Committee will meet at least twice per year on dates on which it may analyse all conditions and information that is

necessary to determine annual compensation or appointments of the Members of the Board or the Senior Executives of Duro

Felguera and its Subsidiaries.

The Secretary will keep minutes to the meetings covering all important matters and the resolutions adopted by the

Committee, which must be adopted by a majority of its members.

20

The Committee Chairman will report the content of the resolutions adopted by the Committee to the Board of Directors at the

first meeting held subsequently.

The Committee may regulate its own internal operations and propose any modification to its regulations to the Board

of Directors.

Its responsibilities are defined in Article 18 of the Internal Board Regulations.

AUDIT COMMITTEE

The Audit Committee will be made up of a minimum of three members, chosen from among Directors, and they will be

appointed for four-year terms and may be re-elected for equal or lesser terms. The Audit Committee must have a majority of

non-executive Directors appointed by the Board of Directors, and a chairman must be selected from among those non-

executive Directors, and the Chairman must be replaced every four years although the same Director may be re-elected after

one year has elapsed after removal.

The Members of the Audit Committee will be removed after the end of the term for which they have been appointed, either

through their resignation or due to leaving the position of Director.

The Committee will be assisted by a non-voting Secretary, he does not have to be a Director.

The Committee will meet as often as is deemed advisable but not less than four times per year, within 15 days after the end

of each calendar quarter.

One of the meetings will debate all matters that must be submitted to shareholders at a General Meeting, with respect to both

the appointment of the external auditor as well as to evaluate the information that the Board of Directors must approve and

include in its annual public documentation, including the Audit Report.

The Committee will have a quorum when the meeting is attended by one half plus one of its members. In the event that all

members do not attend a meeting decisions must be taken by unanimous vote instead of by majority vote.

Its responsibilities are regulated by Article 15 of the Board Regulations and by Article 25 of the bylaws.

CONTRACTS, INVESTMENTS AND PROJECTS COMMITTEE

The Committees formed by four members of the Board that are designated by the Board of Directors for the same term

for which they have been appointed as Directors.

The Committee will select a Chairman from among those members. Similarly, the Committee will appoint a non-voting

Secretary from among the Secretary or Vice-Secretary of the Board of Directors or any Committee members.

Any company technical staff may attend meetings when requested to do so. The Committee meetings may also be attended

by any technical personnel deemed necessary by the Committee. Such an appointment must be agreed by the Company

Chairman who, ultimately, will decide on the ideal nature of the appointed person. Technical personnel will not form part of

the Investments and Projects and Committee.

The Committee will adopt resolutions by majority vote of its members and at least two members must be present for a

valid quorum. If all members are not in attendance the decisions must be taken by unanimous vote instead of by majority

vote.

Positions on the Contracts, Investments and Projects Committee will be compensated as agreed by the Company's Board of

Directors.

This Committee will not meet regularly but rather operate as a Delegate Committee of the Board of Directors and will

meet as after as necessary to take decisions regarding the matters in its area of competency and when there are

difficulties or impediments to holding an Extraordinary Board of Directors' Meeting with the speed that is required in

each case based on circumstances.

Its responsibilities are defined in Article 14 ter of the Board Regulations.

C.2.5 Indicate the existence, if appropriate, of Board Committee Regulations, where they are available

for consultation and any modifications made during the year. State whether or not an annual

report has been issued voluntarily on the activities of each Committee.

Board Committees are regulated by the Board of Directors' Regulations. At the Board of Directors' meeting held on 15

December 2011 a resolution was adopted to modify the competencies of the Nominations and Compensation Committee and

the Audit Committee, and after that date the responsibility for monitoring compliance with internal management rules was

assigned to the Audit Committee. Similarly, the Contracts, Investments and Projects Committee then took on an

extraordinary nature since it only meets for urgent reasons that impede a Board of Directors' meeting being validly called and

held.

21

Shareholders at a general meeting were informed of the changes and the content of the Board Regulations at the

meeting held on 17 May 2012, in accordance with the provisions of Article 516 of the Spanish Companies Act 2010.

The Board of Directors' Regulations may be consulted on the Company's website, have been registered with the Asturias

Mercantile Registry and sent to the National Stock Market Commission. The Specific Committee Regulations are available for

consultation on the Company's website and have been sent to the National Stock Market Commission.

No annual reports regarding the activities of each Committee have been prepared. Instead, at the next Board of Directors'

meeting the Chair of each Committee reports the activities carried out at that last Committee meeting and all of the minutes

to those meetings are available to all Directors.

C.2.6 Indicate whether or not the composition of the Executive Committee reflects the participation on

the Board of different types of Directors:

Yes X No

D RELATED-PARTY AND INTRA-GROUP TRANSACTIONS

D.1 Identify the competent body and explain any procedures for approving transactions with related-party

or intra-group parties.

Competent body for approving related-party transactions

The competent body for approving related-party transactions is the Board of Directors.

Procedure for approving related-party transactions

If the related-party transaction involves a commercial operation that may be competition for third parties, the related party must submit

its bid to the same analysis as those presented by third parties on an equal opportunity basis, which will be analysed and evaluated by

the relevant Department, normally Purchasing, which will present its conclusions to the Board of Directors. These types of transactions

must always be approved by the Board, whether carried out directly by DF or any of its subsidiaries.

Intra-group transactions are analysed in the same manner as those indicated above and if awarded two subsidiaries, the amount of the

intra-group contract is separated from the total number of group contracts.

State whether the approval of transactions with related parties has been delegated indicating, if

appropriate, the body or persons to which this authority has been delegated.

The approval of these transactions has not been delegated.

D.2 List any significant transactions involving a transfer of resources or obligations between the Company

and/or Companies in its group and significant Company shareholders:


shareholder

Name of the company

or group company

Nature of the

relationship

Type of transaction

Amount (thousand

euro)

MR JUAN GONZALO ALVAREZ ARROJO

INVERSIONES SOMIO, S.L. Corporate Dividends and other distributed profits

11,185

MR RAMIRO ARIAS LOPEZ INVERSIONES RÍO

MAGDALENA, S.L.

Corporate Dividends and other distributed profits

4,437

ONCHENA, S.L. ONCHENA, S.L. Corporate Dividends and other distributed profits

2,318

D.3 List any significant transactions involving a transfer of resources or obligations between the Company

or Companies in its group and Company Directors or executives:

22

D.4 List any significant transactions with other companies in the group that are not eliminated in the

consolidated financial statements and which do not, by virtue of their object or terms, relate to the

Company’s normal business:

In any event, any intra-group transaction carried out with companies established in countries or

territories that are considered to be tax havens will be reported:

D.5 Indicate the amount of transactions carried out with other related parties.

179 (Thousand euro)

D.6 Explain the mechanisms established to detect and resolve possible conflicts of interest between the

Company and/or its Group and its Directors, senior management or significant shareholders.

The Board Regulations establish the mechanisms and manners of operating in the event there is a conflict of interest between the

Company, its Directors, the natural person representatives of legal person Directors, significant shareholders and executives.

These mechanisms require the aforementioned persons to inform the Board of Directors, via various means, of their interest in

competing companies or those with similar corporate purposes and in the event of a conflict of interest the affected person may not

intervene in the Company's decisions regarding any matters involving the conflict of interest.

D.7 Are more than one of the Group’s companies listed in Spain?

Y e s N o X

Identify the subsidiaries that are listed on a stock market in Spain:

Listed subsidiary

Indicate if the type of activity they engage in and any business dealings between them, as well

as between the subsidiary and other group companies have been precisely and publicly

defined.

Define any business relationships between the parent company and the

listed subsidiary, and between the latter and other group companies

Identify the mechanisms established to resolve any conflicts of interest between the listed subsidiary and other group companies:

Mechanisms for resolving any possible conflicts of interest

E RISK CONTROL AND MANAGEMENT SYSTEMS

E.1 Explain the scope of the Company's Risk Management System.

Risk management ultimately falls to the Board of Directors which, with appropriate and adequate information, takes decisions regarding

those matters that due to their nature, size or risk exceed the scope of the bodies/committees that are involved with the Company's daily

management. When the size or associated risk of a transaction exceeds the limits of habitual management, it is submitted for the

approval of the Board.

In addition, through the Audit Committee the Board determines the Internal Management Rules (IMR) that company employees must

follow to guarantee adequate risk management. The IMR are very oriented towards risk management and control and establish the scope

of operation of business units and corporate departments.

23

This is how responsibilities are established for each function or unit and action is limited in areas reserved for the big decisions by higher

bodies. These IMR arise as a response to the Company's integral risk analysis and the Company's risk experiences.

E.2 Identify the corporate bodies that are responsible for preparing and executing the Risk Management

System.

The Company has a Risk Committee that is not a Board of Directors Committee consisting on the

Chairman and CEO and a multidisciplinary team of professionals.

- Chairman

- Director of Finance

- Director of Legal Counsel

- Director of Internal Audit

- Director of Human Resources

As is indicated in section E.1, ultimate risk management responsibility falls to the Board of Directors.

E.3 Indicate the primary risks that may affect the attainment of the business objectives.

There are diverse risks inherent to the Company's activity-technical, technological, financial, legal, tax, country, human resource,

reputational, etc.- and therefore they require integral analysis or treatment. It is therefore necessary for professional specialized in

different disciplines o be involved in the process of identifying risks and defining the most adequate risk management strategy.

The technical risks arising on projects (products or services) are presented to the Risk Committee by the persons responsible for the

various business units.

E.4 State whether the company has a risk tolerance level.

The Company has risk tolerance levels established at the corporate level for the main types of risks.

The risk evaluation process starts with the identification of risks, generally by the businesses that are exposed. This identification takes

place at the time of exposure. However, an in-depth review by the Risk Committee is carried out annually to guarantee the proper

identification of all current and potential exposures.

The Risk Committee is responsible for evaluating the identified risks, determining the:

- Risk position: Definition and characteristics.

- Impact variables.

- Qualitative and quantitative severity of the materialization of the risk.

- Probability of occurrence.

- Mitigation controls and mechanisms and their effectiveness.

Finally, a tolerance level will be proposed for the types that are identified.

E.5 Indicate what risks have materialized during the year.

In 2014 no significant risks that affect the company and/or its group have materialized, other than those reported in the annual

accounts.

E.6 Explain the response and supervisory plans for the Company's main risks.

The Risk Committee has specific risk analysis software tools that allow the information relating to transactions to flow between the various

business units and the corporate staff services who analyse and provide advice regarding the particular conditions of each transaction.

These analyses translate into the detection of particular risks that must be covered where possible and cost efficient. Risks that cannot be

covered due to their nature are presented to the Risk Committee, which evaluates whether they can be assumed or not.

The list of risks that may be present and which are intended to be covered through the risk management system could be very broad.

We provide some examples:

- Country risk (legal security, politics, taxes, etc.)

- Financial risks (exchange and interest rate fluctuations, guarantees/surety, taxes, customer solvency, etc.)

- Legal risks (risk contractual conditions, corporate structures, etc.)

- Human Resource Risks (accessibility and cost of local labour, work permits, etc.)

- Reputational risk (customers, administrations, etc.)

24

F INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS RELATING TO THE

PROCESS OF ISSUING FINANCIAL INFORMATION (FRICS)

Describe the mechanisms that make up control and risk management systems relating to the process

of issuing financial information by the Company.

F.1 Control environment at the Company

Describe, indicating the main characteristics, the following:

F.1.1. What bodies and/or duties are responsible for: (i) the existence/maintenance of an adequate

and effective FRICS; (ii) its implementation and (iii) its supervision.

The Board of Directors is responsible for the existence of an adequate and effective FRICS. The financial-economic area is

responsible for its design, implementation and operation. The Audit Committee is the body responsible for supervising the

FRICS and to carry out this duty it has the internal audit function which evaluates the efficiency of the FRICS during its annual

review and regularly reports on any weaknesses detected so that they may be corrected.

F.1.2. Particularly with respect to the process of preparing financial information, do any of the

following items exist:

Departments and/or mechanisms responsible for: (i) the design and review of the organizational structure (ii) the

clear definition of lines of responsibility and authority, with an adequate distribution of tasks and duties and (iii)

the existence of sufficient procedures to adequately inform company employees.

Yes, they exist.

Code of Conduct, approving body, extent of communication and instruction, including principles and values

(indicating and penalty actions any specific mention is made to the recording of transactions and the preparation

of financial information), body responsible for analysing any failures to comply and proposing corrective and

penalty action.

There is a code of conduct approved by the Audit Committee that is applicable to all employees and adequately

communicated to them and which dedicate a section to transparency when preparing the financial information, as follows:

“As a listed company, Duro Felguera must make special efforts so that the information communicated to the markets is

truthful and to thus protect the interest of current and potential investors. Duro Felguera and its employees shall take all

necessary measures to ensure that the transactions carried out by the Company are faithfully recorded. Employees

must be aware, and assume responsibility for, the impact of business transactions on accounting information and must

act with transparency and report in due time and form of any circumstance that could affect that transparency to the

appropriate responsible person"

Whistle-blower channel that allows the Audit Committee to be informed of any financial or accounting

irregularities, in addition to any failure to comply with the code of conduct and any irregular activities at the

organisation, indicating whether or not the procedure is confidential.

The same code of conduct makes reference to the whistle-blower channel under the heading "Doubts or non-compliance":

“In the event of any doubt or observation of non-compliance, employees must inform the company through the Internal

Audit and Risk ([email protected] or by telephone). Any report of non-compliance with be treated confidentially.”

Training and recycling programs for employees involved with the preparation and review of financial information,

as well as the evaluation of the FRICS that covers at least accounting, audit, internal control and risk

management standards.

25

In the event that legislative changes affect the recognition of the type of transactions carried out by Duro Felguera,

information is provided to the employees that are responsible for preparing financial information. In addition, there is a

Consolidation and Reporting Department with specialized accounting employees that acts as a technical department. In

the case of complex transactions an opinion is requested from external experts. There is also a corporate accounting

manual that provides for the uniform application of accounting policies and standards.

F.2 Evaluation of financial information risks

Report at least:

F.2.1. What are the main characteristics of the risk identification process, including the risk of error or

fraud, with respect to:

Whether or not the process exists and is documented.

The risk identification process is carried out using the method described in Audit Standard 5 "top-down risk-based

approach". Accordingly, the approach used by Duro Felguera is that which is recommended under US standards for

companies subject to the Sarbanes Oxley Act - even though Duro Felguera is not subject to this legislation and therefore it

does not have a specific external audit report regarding internal control.

Under this approach, it is important to first evaluate the company's control environment, the tone-at-the-top, the existence of

rules and procedures at the corporate level, the risks that those rules are intended to cover, adequate segregation of duties,

effective committees, whistle-blower channel, supervisory controls, etc. At a company such as Duro Felguera, which

engages in the execution of large products, all those risks that are evaluated before contracting will result in a lower risk of

error when preparing the financial statements. A simple analysis of the solvency of a customer before contracting, for

example, will probably reduce risk of unrecorded material outstanding balances.

The Company also identifies all those risk that, while inherent to the type of transactions carried out by the Company, could

have an impact on the preparation of financial information. The risk is measured based on the probability of occurrence and

the potential impact. To do so, both qualitative (accounting complexity of the transaction, technical capacity of the

employees that their the account, number of transactions that make up the balance, atomization of the balances,

susceptibility of the asset the risk of changes in value, fraud, objective measurement, etc.) and quantitative (the balance of

the accounts) variables are taken into account.

Whether or not the process covers all financial information objectives (existence in the currents, integrity,

measurement, presentation disclosures and comparability, rights and obligations), and whether or not it is

updated and with what frequency.

All of these analyses will define the scope for evaluating the processes and controls associated to the processes and which

reasonably guarantee the reliability of the financial information prepared. This scope will serve as a basis for planning the

internal audit work established to the value the FRICS.

In 2014 several internal audits were carried out that gave rise to improvement recommendations, some of which have

already been resolved and others which are currently being resolved, although in no case were they weaknesses with

significant potential impact

The existence of a process for identifying the scope of consolidation, taking into account, among other things,

the possible existence of complex corporate structures or special purpose vehicles.

Yes, this exists

Whether or not the process takes into account the effects of other types of risks (operating, technological,

financial, legal, reputational, environmental, etc.) To the extent that they affect the financial statements.

Yes, it does take them into account.

Which governing body at the company supervises the process?

26

The Audit Committee receives regular feedback from the Director of Internal Audit and Risk Control regarding the risk

that may affect the preparation of financial information.

F.3 Control activities

Indicate, describing the main characteristics, whether or not the company has at least the following:

F.3.1. Procedures for reviewing and authorizing financial information and the description of the FRICS to

be published in securities markets, indicating the persons responsible as well as documentation

describing the flow of activities and controls (including those relating to the risk of fraud) for the

various types of transactions that could materially affect financial statements, including the year

end closing procedure and the specific review of relevant judgments, estimates, measurements

and projections.

Although the company has document describing the processes and a control matrix, they are being completely transformed

as a result of the new requirements established by the new system, the replacement of manual processes and controls

automatic mechanisms, the integration of information, the ability to extract new reports that will allow information to be better

controlled, etc.

The controls are expected to comply with the CAVR objectives ( completeness, accuracy, validity, restricted access)

F.3.2. Internal control procedures and policies regarding information systems (including access

security, change controls, their operation, operating continuity and segregation of duties) that

support the company's relevant processes with respect to the preparation and publication of

financial information.

Duro Felguera has implemented the measures that are necessary to comply with the best market practices in terms of

internal control over information, access controls, computer security, etc.

F.3.3. Internal control procedures and policies intended to supervise the management of

subcontracted activities, as well as those aspects of evaluation, calculation or measurement

requested from independent experts that could materially affect the financial statements.

It should be noted that the internationalization process has meant that a small portion of the process of preparing financial

information and legislative compliance is done in foreign locations. To better ensure compliance with local legislation -

accounting, tax, legal, etc. in each country and, therefore, reduce the exposure to compliance risk, Duro Felguera maintains a

cooperation agreement with an accounting and audit firm of recognised prestige to prepare financial information regarding

foreign locations. Compliance therefore remains in the hands of professionals with consolidated knowledge of local

requirements and who pertain to an internationally recognized firm. Nonetheless, this firm operates under the attentive

supervision and control of professionals at Duro Felguera that verify all of the support documentation for recorded transactions

and which give rise to the financial statements.

F.4 Information and communications

Indicate, describing the main characteristics, whether or not the company has at least the following:

F.4.1. A specific duty responsible for defining accounting policies and maintaining them up to date

(accounting policy department or area) and for resolving doubts or conflict deriving from their

interpretation, maintaining fluid communication with the persons responsible for the

organization's operations, as well as an accounting policy manual that is up to date and issued

to the units through which the company operates.

27

Yes, this exists Duro Felguera makes a corporate accounting manual available to all employees that provides for the uniform

application of corporate accounting policies and criteria.

F.4.2. Mechanisms for capturing and preparing financial information using uniform format, applicable

and used by all company or group units that support the main financial statements and the

notes to the annual accounts, as well as the information provided regarding the FRICS.

Yes, they exist.

F.5 Supervision of system operations

Describe, indicating the main characteristics, at least the following:

F.5.1. The FRICS supervision activities carried out by the Audit Committee, as well as whether or not

the company has an internal audit area that supports the Committee with its duty to supervise

the internal control system, including the FRICS. It will also report on the scope of the FRICS

evaluation carried out during the year and the procedure through which the person responsible

for executing the evaluation reports the results, whether or not the company has an action plan

that covers the future corrective measures and whether or not the impact on the financial

information has been taken into consideration.

As has been mentioned in the preceding sections, the Audit Committee, through the internal audit area, supervises the

internal control systems covering financial information.

F.5.2. Whether or not there is a discussion procedure through which the auditor (in accordance with the

provisions of the Technical Audit Standards), the internal audit area and other experts may

inform senior management and the Audit Committee or the Directors of the company of any

significant internal control weaknesses identified during the review of the annual accounts or any

others that may have been requested. Also report whether or not there is an action plan to

correct or mitigate any observed weaknesses.

The Audit Committee and the external auditor hold regular meetings to discuss any weaknesses detected during the audit

work (in accordance with the Technical Audit Standards). These meetings result in correction plans.

F.6 Other relevant information

N/A

F.7 Report of the external auditor

Report on:

F.7.1. Whether or not the FRICS information sent markets has been reviewed by the external auditor,

in which case the company must include the relevant report as an appendix. If not, the

reasons must be explained.

The external auditor has not been requested to issue report regarding the FRICS information sent to markets in 2014.

28

G EXTENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE RECOMMENDATIONS

Indicate the degree of compliance by the company with the recommendations of the Unified Good

Governance Code.

In the event that any recommendation is not followed or is followed partially, a detailed explanation of

the reasons must be provided so that shareholders, investors and the market in general have sufficient

information to evaluate the Company's decision. Explanations of a general character will not be

acceptable.

1. The listed companies' bylaws do not limit the maximum number of votes that may be cast by the same

shareholder or contain any other restrictions that make taking control of the company difficult through

the acquisition of its shares on the market.

See headings: A.10, B.1, B.2, C.1.23 and C.1.24.

Comply X Explain

2. When the parent company and a subsidiary are listed both publicly and precisely define the following:

a) The type of activity they engage in and any business dealings between them, as well as between

the subsidiary and other group companies;

b) The established mechanisms for resolving any possible conflicts of interest that may arise.

See headings: D.4 and D.7

Comply Partially comply Explain Not applicable X

3. Even when not expressly required under company law, any decisions involving a fundamental corporate

change should be submitted to the General Shareholders' Meeting for approval or ratification. In

particular:

a) The transformation of listed companies into holding companies through "subsidiarisation" or

the entry of subsidiaries into essential activities previously carried out by the company itself,

even if it maintains full ownership of them.

b) The acquisition or disposal of essential operating assets, when involving an effective

modification of the corporate purpose.

c) Transactions whose effect is equivalent to the liquidation of the company.

See heading: B.6

Comply X Partially comply Explain

4. The proposals set out in the resolutions to be adopted by the general meeting, including the information

referred to by recommendation 27 are made public at the time the call to the meeting is published.

29

Comply X Explain

5. Shareholders at a general meeting vote separately for those matters that are substantially independent,

so that the shareholders may separately exercise their voting preferences. This rule is particularly

applied to:

a) The appointment or ratification of directors, which must be voted on individually.

b) Amendments to the bylaws, with votes taken on all articles or groups of articles that are

materially different.


6. The companies allow votes to be split so that financial intermediaries that are recognised as

shareholders, but which act on behalf of different clients, may cast their votes in accordance with client

instructions.

Comply X Explain

7. The Board performs its duties with unity of purpose and independent judgment, it treats all shareholders

equally and is guided by the company's interests which is understood to be the maximisation, on a

sustained basis, of the Company's value.

It also ensures that the Company complies with legislation and regulations in its relationships with

stakeholders, complies in good faith with its obligations and contracts, respects the good practices in

the sectors and territories in which it operates and observes those additional corporate responsibility

principles that it has voluntarily accepted.


8. The Board assumes that the core of its mission is the approval of the company's strategy and the

organisation that is necessary to put it into practice, as well as the supervision and control over

management's compliance with the objectives that are set and respects the company's business

purpose and interests. The full Board therefore reserves the authority to approve:

a) The company's general policies and strategies, and in particular:

i) The strategic or business plan, as well as the management objectives and annual budgets

ii) The investment and financing policy

iii) The definition of the structure of the group of companies

iv) The corporate governance policy

v) The corporate social responsibility policy

vi) The compensation policy and evaluation of the performance of senior executives

30

vii) The risk control and management policy, as well as regular monitoring of internal information and

control systems

viii) The dividend policy, as well as the treasury share portfolio and, in particular, its limits

See headings: C.1.14, C.1.16 and E.2

b) The following decisions:

i) At the proposal of the Company's CEO, the appointment and removal of senior executives, and any

applicable indemnity clauses.

ii) Director compensation and, in the case of executives, additional compensation for performing

executive duties and other conditions that their contracts must respect.

iii) Financial information that, as a listed company, the company must regularly make public.

iv) Investments or operations considered strategic by virtue of their amount or special characteristics,

unless their approval corresponds to the General Shareholders’ Meeting;

v) The creation or acquisition of shares in special purpose vehicles or domiciled in countries or territories

that are considered to be tax havens, as well as any other transactions or operations of a similar nature

that, due to their complexity, could harm the Group's transparency.

C) Transactions which the company conducts with directors, significant shareholders,

shareholders with board representation or other persons related thereto (“related-party

transactions”).

However, Board authorization need not be required for related-party transactions that

simultaneously meet the following three conditions:

1. They are carried out under contracts with standardised conditions that are applied in general to

many customers.

2. They are carried out at prices or rates established in general by the person acting as the supplier

of the goods or services concerned.

3. Their amount does not exceed 1% of the Company's annual revenues.

It is advisable that related-party transactions should only be approved on the basis of a favourable

report from the Audit Committee or committee handling the same function; and that the directors

involved should neither exercise nor delegate their votes, and should withdraw from the meeting

room while the Board deliberates and votes.

Ideally, the above powers should not be delegated with the exception of those mentioned in b) and c),

which may be delegated to the Delegate Committee in urgent cases and later ratified by the full Board.

See headings: D.1 and D.6


9. In the interests of maximum effectiveness and participation, the Board of Directors should ideally

comprise no fewer than five and no more than fifteen members.

31

See heading: C.1.2

Comply X Explain

10. External directors, proprietary and independent, should occupy an ample majority of Board places, while

the number of executive directors should be the minimum practical, bearing in mind the complexity of

the corporate group and the ownership interests they control.

See headings: A.3 and C.1.3.


11. That among external directors, the relation between proprietary members and independents should

match the proportion between the capital represented on the Board by institutional directors and the

remainder of the company’s capital.

This proportional criterion can be relaxed so the weight of institutional directors is greater than

would strictly correspond to the total percentage of capital they represent:

1. In large-cap companies where few or no equity stakes attain the legal threshold for significant

shareholdings, despite the considerable sums actually invested.

2. In companies with a plurality of shareholders represented on the Board but not otherwise

related.

See headings: A.2, A.3 and C.1.3

Comply X Explain

12. The number of independent Directors represents at least one-third of the total number of directors.

See heading: C.1.3

Comply X Explain

13. Such determination should subsequently be explained by the Board to the General Meeting and be

confirmed or reviewed in each year’s Annual Corporate Governance Report, after verification by the

Nomination Committee. The said Report should also disclose the reasons for the appointment of

institutional directors at the urging of shareholders controlling less than 5% of capital; and explain any

rejection of a formal request for a Board place from shareholders whose equity stake is equal to or

greater than that of others applying successfully for an institutional directorship.

See headings: C.1.3 and C.1.8


14. When there are few or no female Directors, the Nominations Committee ensures that when covering new vacancies:

32

a) The process of filling Board vacancies has no implicit bias against women candidates;

b) The Company deliberately seeks female candidates that meet the appropriate professional

profile.

See headings: C.1.2, C.1.4, C.1.5, C.1.6, C.2.2 and C.2.4.

Comply Partially comply X Explain Not applicable

There are no selection procedures that are a barrier or could be a barrier to the selection of female Directors. When seeking a certain

professional profile the Company takes into consideration the professional profile and only evaluates the profile that is most adequate

to the business' interests, without taking into account the gender of the candidate.

15. The Chairman, as the person responsible for the proper operation of the Board of Directors, should

ensure that directors are supplied with sufficient information in advance of Board meetings, and work

to procure a good level of debate and active involvement of all members, safeguarding their rights to

freely express and adopt positions; he or she should organize and coordinate regular evaluations of

the Board and, where appropriate, the company’s chief executive, along with the chairmen of the

relevant Board committees.

See headings: C.1.19 and C.1 41


16. When a company's Chairman is also its chief executive, an independent director should be empowered

to request the calling of Board meetings or the inclusion of new business on the agenda; to coordinate

and give voice to the concerns of external directors; and to lead the Board’s evaluation of the

Chairman.

See heading: C.1.22

Comply X Partially comply Explain Not applicable

17. The Secretary to the Board of Directors particularly ensures that the Board's actions:

a) Meet the letter and the spirit of the law and enabling regulations, including those approved

by regulatory bodies.

b) They are in line with the Company's bylaws and with the regulations governing the general

meeting and the Board, as well as any other internal regulations.

c) Are informed by those good governance recommendations of the Unified Code that the

company has subscribed to.

In order to safeguard the independence, impartiality and professionalism of the Secretary, his or her

appointment and removal should be proposed by the Nomination Committee and approved by a full

Board meeting, the relevant appointment and removal procedures being spelled out in the Board’s

regulations.

See heading: C.1.34

Comply Partially comply X Explain

33

There are no appointment and removal procedures other than those established by law and the bylaws. The current Secretary to the

Board of Directors was appointed after a report was presented by the Nominations Committee. The Board Regulations include

compliance with Good Governance recommendations among its duties.

18. The Board should meet with the necessary frequency to properly perform its functions, in accordance

with a calendar and agendas set at the beginning of the year, to which each director may propose the

addition of other items.

See heading: C.1.29


19. Any absences from Board meetings are unavoidable and are quantified in the Annual Corporate

Governance Report. If representation authority is granted, it is conferred together with instructions.

See headings: C.1.28, C.1.29 and C.1.30


20. When directors or the Secretary express concerns about some proposal or, in the case of directors,

about the company's performance, and such concerns are not resolved at the meeting, the person

expressing them can request that they be recorded in the minute book.


21. The Board in full should evaluate the following points on a yearly basis:

a) The quality and efficiency of the Board's operation;

b) Starting from a report submitted by the Nomination Committee, how well the Chairman and

chief executive have carried out their duties;

c) The performance of its committees on the basis of the reports furnished by the same.



At all meetings the Board of Directors receives reports from the Committees that have met between Board meetings and therefore it

receives regular reports over the course of the year and, in this connection, the Board considers that its reports fall within Section C of

Recommendation 22 of the CUBGC as they are considered to be more effective and immediate than an explanatory annual report

covering all of the activities that take place during the year while the CUBGC does not specify that there must be a single annual report.

22. All directors should be able to exercise their right to receive any additional information they require on

matters within the Board's competence. Unless the bylaws or Board regulations indicate otherwise,

such requests should be addressed to the Chairman or Secretary.

See heading: C.1.41

Comply X Explain

34

23. All Directors have the right to obtain from the Company the advisory services that are necessary to

fulfil their duties. The Company provides adequate resources to exercise this right which, in special

circumstances, may include external advisory services paid for by the Company.

See heading: C.1.40

Comply X Explain

24. The companies establish an orientation programme to provide new Directors with quick and sufficient

knowledge of the company and its corporate governance rules. Directors should also be offered

refresher programmers when circumstances so advise.


25. The companies require Directors to dedicate the necessary time and effort to effectively perform their

duties and, as a result:

a) Directors should apprise the Nomination Committee of any other professional obligations, in

case they might detract from the necessary dedication;

b) The companies have established rules on the number of boards on which its Directors may

sit:

See headings: C.1.12, C.1.13 and C.1.17


Directors are required to report any professional activities that could interfere with their dedication to the Company. For these

purposes and within the organization of the Board, at the beginning of the year the Board sets an annual meeting schedule together

with that for the various Committees so that Directors are provided with sufficient advance notice of the date of the meetings and can

arrange their schedule around their other professional obligations.

There are no rules regarding the number of boards to which Directors may pertain, regardless of the obligation to report any

appointments for membership in a board for a company that carries out a corporate purpose that is similar or complementary to that

of the Company.

26. The proposal for the appointment or renewal of directors that the Board submits to the General

Shareholders’ Meeting, as well as provisional appointments by the method of co-option, should be

approved by the Board:

a) On the proposal of the Nomination Committee, in the case of independent directors.

b) Subject to a report from the Nomination Committee in all other cases.

See heading: C.1.3


35

27. The company publishes, and maintains up-to-date, the following information regarding their directors:

a) Professional and biographical profile

b) Other Directorships held in other companies, listed or otherwise;

c) Indication of the category to which the director pertains, as appropriate, indicating for

proprietary directors the shareholder they represent or with which they are related.

d) Date of first appointment to the Company's Board, as well as any subsequent appointments

and

e) Company shares, and stock options, held.


28. Proprietary directors present their resignation when the shareholder they represent sells all of the

shares making up their stake in share capital. Directors also resign, in the appropriate number, when

that shareholder reduces its stake in the company to a level that requires a reduction in the number of

proprietary directors.

See headings: A.2, A.3 and C.1.2


The Board of Directors understands that the loss of status of Institutional Director should not be a barrier against receiving the services of

a Director that may acquire the status of external director and provide, for professional reasons, important value for the Company. It also

understands that the Board is not authorized to remove Directors as this is an authority reserved exclusively for shareholders at a

General Meeting and it considers that compliance with this recommendation must be followed by East Director when in such a situation

and this is notwithstanding the fact that the Board of Directors or the Nominations Committee may approach the Director to ensure that

this recommendation is followed.

29. The Board of Directors should not propose the removal of independent directors before the expiry of

their tenure as mandated by the bylaws, except where just cause is found by the Board, based on a

proposal from the Nomination Committee. In particular, just cause will be presumed when a director is

in breach of his or her fiduciary duties or comes under one of the disqualifying grounds enumerated in

Order ECC/461/2013.

The removal of independents may also be proposed when a takeover bid, merger or similar

corporate operation produces changes in the company’s capital structure, in order to meet the

proportionality criterion set out in Recommendation 11.

See headings: C.1.2, C.1.9, C.1.19 and C.1.27

Comply X Explain

36

30. Companies should establish rules obliging directors to inform the Board of any circumstance that might

harm the organization’s name or reputation, tendering their resignation as the case may be, with

particular mention of any criminal charges brought against them and the progress of any subsequent

trial.

The moment a director is indicted or tried for any of the crimes stated in article 213 of the Spanish

Companies Act 2010, the Board should examine the matter and, in view of the particular

circumstances and potential harm to the company's name and reputation, decide whether or not

he or she should be called on to resign. The Board should also disclose all such determinations in

the Annual Corporate Governance Report.

See headings: C.1.42, C.1.43


In the event that a Director comes under any of these situations, the Nominations and Compensation Committee will take a decision

and make a proposal to the Board based on the circumstances of the case.

31. All directors should express clear opposition when they feel a proposal submitted for the Board's

approval might damage the corporate interest. In particular, independents and other directors unaffected

by the conflict of interest should challenge any decision that could go against the interests of

shareholders lacking Board representation.

When the Board makes material or reiterated decisions about which a director has expressed

serious reservations, then he or she must draw the pertinent conclusions. Directors resigning for

such causes should set out their reasons in the letter referred to in the next Recommendation.

The terms of this Recommendation should also apply to the Secretary to the Board, Director or

otherwise.


32. Directors who give up their place before their tenure expires, through resignation or otherwise, should

state their reasons in a letter to be sent to all members of the Board. Notwithstanding the fact that such

a resignation or removal is reported as a relevant event, the reason for the exit is reported in the

Annual Corporate Governance Report.

See heading: C.1.9


33. Executive directors are limited to compensation involving the delivery of company shares, or shares in

group companies, stock options or instruments indexed to the value of the share, variable compensation

associated with company performance or retirement compensation.

The delivery of shares is excluded from this limitation when directors are obliged to retain them

until the end of their tenure.

Comply Partially comply Explain X Not applicable

There are currently no stock options at the Company.

37

34. External directors' compensation should sufficiently compensate them for the dedication, abilities and

responsibilities that the post entails, but should not be so high as to compromise their independence.

Comply X Explain Not applicable

35. The compensation related to the company's results takes into account any qualifications that may be

included in the external audit report and that reduce those results.


36. In the case of variable awards, compensation policies should include limits and technical safeguards to

ensure they reflect the professional performance of the beneficiaries and not simply the general progress of

the markets or the company’s sector, atypical or exceptional transactions or circumstances of this kind.


37. When the company has an Executive Committee, the breakdown of its members by director category

should be similar to that of the Board itself. The Secretary of the Board should also act as secretary to

the Executive Committee.



38. The Board should be kept fully informed of the business transacted and decisions made by the

Delegate Committee. To this end, all Board members should receive a copy of the Committee’s

minutes.


39. In addition to the Audit Committee mandatory under the Securities Market Law, the Board of Directors

should form a committee, or two separate committees, of Nomination and Compensation.

The rules governing the make-up and operation of the Audit Committee and the committee or

committees of Nomination and Compensation should be set forth in the Board regulations, and

include the following:

a) The Board designates the members of these Committees, taking into account the knowledge,

skills and experience of directors and the duties of each committee, debates its proposals

and reports and must report, at the first board meeting after its meetings, its activities and

work performed.

b) These committees should be formed exclusively of external directors and have a minimum of

three members. Executive directors or senior officers may also attend meetings, for

information purposes, at the Committees’ invitation.

38

c) Committees should be chaired by an independent director.

d) They may receive external advisory services when considered necessary to perform their

duties.

e) Meeting proceedings should be minuted and a copy sent to all Board members.



Although minutes are kept of the various committee meetings, they are not sent to other directors. However, the Chair of each

Committee provides a summary at the following Board meeting of the matters discussed and the related proposals, and the

intervention is reflected in the minutes to the Board of Directors' Meeting and copies are distributed to all Directors. The minutes to

Committee meetings are always available to those directors that request them.

40. The job of supervising compliance with internal codes of conduct and corporate governance rules

should be entrusted to the Audit Committee, the Nomination Committee or, as the case may be,

separate Compliance or Corporate Governance committees.


Comply X Explain

41. All members of the Audit Committee, particularly its chairman, should be appointed with regard to their

knowledge and background in accounting, auditing and risk management matters.

Comply X Explain

42. Listed companies should have an internal audit function, under the supervision of the Audit Committee, to

ensure the proper operation of internal reporting and control systems.

See heading: C.2.3

Comply X Explain

43. The head of internal audit should present an annual work program to the Audit Committee; report to it

directly on any incidents arising during its implementation; and submit an activities report at the end of

each year.


44. The risk control and management policy identifies at least:

a) The different types of risk (operational, technological, financial, legal, reputational…) the

company is exposed to, with the inclusion under financial or economic risks of contingent

liabilities and other off-balance-sheet risks;

39

b) The determination of the risk level the company sees as acceptable;

c) The measures established to mitigate the impact of identified risks, if any materialise.

d) The internal control and information systems that will be used to control and manage those

risks, including contingent liabilities or off-balance sheet risks.

See heading: E


The Company's primary activity is the execution of large products in its various lines of business, and operates both in Spain and

abroad and therefore risk controls are intended to examine those projects that have characteristics that are different than those

normally executed. The examined characteristics refer to:

1: Country risk: examination of the political risk in those countries where the Company has not previously operated.

2: Assurance of the payment of receivables.

3: Exchange rate hedges.

4: Evaluation of the capacity of local subcontractors.

5: Legal security.

6: Customer solvency.

7: In the event of participating in joint ventures, the risk and responsibility of the execution of the project is shared with the rest of the

members of the joint venture.

8: Exact definition of the purpose of the contract and the commitments to be met by the Company.

Given the Company's activity, it does not acquire permanent facilities in the places at which projects are carried out and only branch offices

and incorporates companies for a specific purpose.

45. The Audit Committee’s role should be:

1. As regards internal control and information systems:

a) That the main risks identified as a result of the supervision of the Company's internal control and internal

audit effectiveness is adequately managed and reported.

b) Ensure the independence and effectiveness of the internal audit function, propose the selection,

appointment, re-election and removal of the person responsible for the internal audit service, propose

the budget for this service, receive regular information regarding its activities and verify that senior

management takes into account the conclusions and recommendation of its reports.

c) Establish and supervise a mechanism that allows employees to confidentially and, if deemed

appropriate, anonymously, report any potentially important irregularity, particularly those of a financial

and accounting nature, that they may observe within the company.

2. As regards the relationship with the external auditor:

a) Regularly receive information from the external auditor regarding the audit plan and the results of its

execution, and verify that senior management takes its recommendations into account.

b) Ensure the independence of the external auditor and, in this respect:

i) The company reports any change in the auditor to the CNMV as a relevant event, accompanied by a

statement regarding any disagreements with the exiting auditor and their content.

iii) The Committee should investigate the issues giving rise to the resignation of any external auditor.

40

See headings: C.1.36, C.2.3, C.2.4 and E.2


46. The Audit Committee should be empowered to meet with any company employee or manager, even

ordering their appearance without the presence of another senior officer.

Comply X Explain

47. The Audit Committee should prepare information on the following points from Recommendation 8 for

input to Board decision-making:

a) Financial information that, as a listed company, the company must regularly make public.

The Committee should ensure that interim statements are drawn up under the same

accounting principles as the annual statements and, to this end, may ask the external

auditor to conduct a limited review.

b) The creation or acquisition of shares in special purpose vehicles or domiciled in countries

or territories that are considered to be tax havens, as well as any other transactions or

operations of a similar nature that, due to their complexity, could harm the Group's

transparency.

c) Related-party transactions, except where their scrutiny has been entrusted to some other

supervision and control committee.



48. The Board of Directors should seek to present the annual accounts to the General Shareholders’

Meeting without reservations or qualifications in the audit report. Should such reservations or

qualifications exist, both the Chairman of the Audit Committee and the auditors should give a clear

account to shareholders of their scope and content.

See heading: C.1.38


49. The majority of Nomination Committee members – or Nomination and Compensation Committee

members as the case may be – should be independent directors.

See heading: C.2.1


50. The Nomination Committee should have the following functions in addition to those stated in earlier

recommendations:

a) Evaluate the balance of skills, knowledge and experience on the Board, define the roles and

capabilities required of the candidates to fill each vacancy,

41

and decide the time and dedication necessary for them to properly perform their duties.

b) Examine or organize, in appropriate form, the succession of the chairman and the chief

executive, making recommendations to the Board so the handover proceeds in a

planned and orderly manner.

c) Reporting on the senior officer appointments and removals which the chief executive

proposes to the Board.

d) Report to the Board on the gender diversity issues discussed in Recommendation 14

of this Code.

See heading: C.2.4


51. The Nomination Committee should consult with the company’s Chairman and chief executive,

especially on matters relating to executive directors.

Any Board member may suggest directorship candidates to the Nomination Committee for

its consideration.


52. The Compensation Committee should have the following functions in addition to those stated in

earlier recommendations:

a) Make proposals to the Board of Directors regarding:

i) The compensation policy for directors and senior executives.

ii) The individual compensation and other contractual conditions of executive directors.

iii) The basic contractual conditions for senior executives.

b) Oversee compliance with the compensation policy set by the company.

See headings: C.2.4


53. The Compensation Committee should consult with the Chairman and chief executive, especially

on matters relating to executive directors and senior officers.


42

H OTHER INFORMATION OF INTEREST

1. If there is any relevant corporate governance issue at the Company or its group of companies that

has not been included in the rest of the sections of this report but which must be included to provide

more complete and reasoned information regarding the company or its group's governance

practices and structure, please provide a brief description.

2. This section may also be used to include any other information, clarification or qualification relating

to the previous sections of the report to the extent they are relevant and not repetitive.

Specifically, state whether the company is subject to any laws other than the laws of Spain on

corporate governance and, if this is the case, include whatever information the Company may be

required to provide when different from the information included in this report.

3. The Company may also indicate if it has voluntarily joined other codes of ethics or good practices,

whether international, industry-related or of any other kind. If this is the case the code in question

will be identified as well as the date of membership.

SECTION H.1

On 19 June 2014 shareholders at a General Meeting approved:

- Authorise the Board of Directors to increase share capital in the terms and conditions established by Article 297.1.b) of the Spanish

Companies Act 2010, over a maximum of five years, with the authority to exclude preferred subscription rights in accordance, in the

latter case, with the provisions of Article 506 of the Spanish Companies Act 2010.

- The authorization of the Board of Directors to issue, once or several times, bonds that may be converted into and/or swapped for

Company shares or warrants within a maximum of five years and through a monetary transaction. The maximum aggregate amount

of issues to be made totals €150,000,000.

- The delegation to the Board of Directors of the authority to issue, once or more times, ordinary or subordinated bonds or debentures

promissory notes and other fixed-income securities, within a maximum of five years and through monetary compensation means.

The authorisation establishes a maximum aggregate amount of issues to be made totalling €50,000,000.

The Agreement also covers the authorization of the Board of Directors so that, in the event that it decides to issue bonds,

necessarily or voluntarily convertible into newly issued shares by the Company, it may adopt a resolution to increase share capital

by the amount necessary to cover the conversion provided that this increase does not exceed ten percent 10% of current share

capital, i.e., €8 million.

- Establish the number of members of the Board of Directors at eight, in accordance with Article 20 of the bylaws.

SECTION H.2

This section includes the information in addition to the Annual Corporate Governance Report that is not included in the current model

Annual Corporate Governance Report in accordance with Article 61.bis of the Stock Market Act, and therefore the additional required

information is presented in this Appendix to the Report.

a) Information regarding the powers of attorney for the members of the Board of Directors.

Under the Articles of Association the Board of Directors represents, manages and administers the Company. Its representation will

extend to all actions within the corporate purposes of these Articles of Association.

The Chairman of the Board of Directors is the chief executive officers and a several executive officer, and has all the powers of the

Board except for those that cannot be delegated.

The Secretary to the Board of Directors is empowered to represent the company before the National Stock Market

Commission.

b) Significant resolutions adopted by the Company that enter into force, are modified or terminate in the event of

a change in the control of the company as a result of a public offering and its effects, except when making such a revelation would

seriously harm the Company. This exception is not applied when the company is legally obligated to disclose this information.

There are no significant resolutions adopted by the Company that would enter into force, be changed or and in the event of any

change in control over the Company as a result of a public acquisition bid.

43

SECTION H.3

At the meeting held on 29 January 2015 the Company's Board of Directors adapted the Board of Directors' Regulations to the

Spanish Companies Act 2010 after the reform of the latter implemented by Law 31/2014 (4 December).

This annual report on corporate governance was approved by the Board of Directors of the Company

on 27/02/2015

Indicate whether any Directors have voted against or abstained in connection with the approval of this

Report.

Y e s N o X

DURO FELGUERA, S.A.

APPROVAL OF THE BOARD OF DIRECTORS

Chairman Mr. Ángel Antonio del Valle Suárez Deputy Chairman Inversiones Somió, S.R.L. Director Inversiones El Piles, S.R.L. Director Inversiones Río Magdalena, S.L.. Director Mr. Carlos Solchaga Catalán Director Mr. Francisco Javier Valero Artola Director Mr. Acacio F. Rodríguez García Director Mr. Francisco Javier González Canga Non-voting Secretary Mr. Secundino Felgueroso Fuentes Certificate prepared by Secundino Felgueroso Fuentes, Secretary to the Board of Directors, to state that, after the preparation and approval of the Balance Sheet, Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flow, Notes to the Annual Accounts and Directors' Report for the year ended 31 December 2014 by all of the members of the Board of Directors, have signed this document consisting of 135 pages, all initialled by me and approved by the Chairman, which includes this page in the Spanish language version signed by each of the Board Members, whose full names and position are indicated after each signature, which I validate and certify. In the event of discrepancy, the Spanish language version prevails. Gijón, 27 February 2015.

Mr. Ángel Antonio del Valle Suárez Mr. Secundino Felgueroso Fuentes

Chairman Non-voting Secretary

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