Audit Report on Financial Statements issued by an Independent Auditor
ENAGAS, S.A. AND SUBSIDIARIES
Consolidated Financial Statements and Consolidated Manaqement Report
for the year ended December 31, 2024
EY
Building a better
workinq world
Ernst & Young, S.L.
C/ Raimundo Fernandez Villaverde, 65 28003 Madrid
Tel: 902 365 456
Fax: 915 727 238
ey.com
AUDIT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS ISSUED BY AN INDEPENDENT
AUDITORTranslation of a report and financial statements originally issued in Spanish. In the event of discrepancy, the Spanish-language version prevails {See Note 4.10a
To the shareholders of ENAGÂS,S.A.:
Audit report on the consolidated financial statements OpinionWe have audited the consolidated financial statements of ENAGAS, S.A. (the parent) and its subsidiaries (the Group), which comprise the consolidated balance sheet at December 31, 2024, the consolidated income statement, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement, and the notes thereto, for the year then ended.
In our opinion, the accompanying consolidated financial statements give a true and fair view, in all material respects, of consolidated equity and the consolidated financial position of the Group at December 31, 2024 and of its financial performance and its consolidated cash flows, for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union (IFRS-EU), and other provisions in the regulatory framework applicable in Spain.
Basis for opinion
We conducted our audit in accordance with prevailing audit regulations in Spain. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial Stdfements section of our report.
We are independent of the Group in accordance with the ethical requirements, including those related to independence, that are relevant to our audit of the consolidated financial statements in Spain as required by prevailing audit regulations. In this regard, we have not provided non-audit services nor have any situations or circumstances arisen that might have compromised our mandatory independence in a manner prohibited by the aforementioned requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Dornlcifio Social: Ca'I°- de Rüimundc Fernúnde z Vil!everde, ó5.28003 ktadrid - Inscrita en el Registro i.Mercantil de k'adrid. tomo 9.364 general. 8.130 de ía seccion 3• del Libro ú°. Sociedades, folio 68. hoja n° 87.ó90-1. inscripción 1º. C.I.F. B-78970506.
EY
Bu"iId"jnq a better
workinq worldKey audit matters
Key audit matters are those matters that, in our professional judqment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forminq our audit opinion thereon, and we do not provide a separate opinion on these matters.
Recovery of financia/ assets related to Gasoducto Sur Peruano, S.A.
Description The Directorate General for Hydrocarbons of the Ministry for Energy and Mines, on January 24, 2017, terminated the "Improvements to the National Energy Security and Development of the South Peruvian Pipeline" concession agreement and the National Institute for the Defense of Competition and Intellectual Property requested that Gasoducto del Sur Peruano, S.A. (GSP) file for bankruptcy.
On July 2, 2018, the Parent Company, filed with the International Centre Tor Settlement of Investment Disputes (ICSID) to initiate arbitration aqainst the Peruvian State reqardinq its investment in GSP and after qoinq throuqh different phases, on December 20, 2024, Enaqas, S.A. was notified that the arbitration award considers that the Republic of Peru has violated its obliqations under Articles 4.1 and 5 of the Peru-Spain APPRI. Consequently, Peru is ordered to pay Enaqls 176 million dollars, plus annual interest of 1.44%, calculated on a simple basis from January 24, 2018 up to the date of the award, and capitalised semi-annually from then until the compensation is actually paid. This results in a total of 194 million euros, in addition to coverinq 75% of the leqal costs.
Taking into account the fair value of the investment in GSP as recognised by ICSID, the value of the financial investment stands at 159,670 thousands of euros as of December 31, 2024. This resulted on recording under "Impairment and gains (losses) on disposals of financial instruments" and "Change in fair value of financial instruments" of the Consolidated Income Statement amounting to 294,966 thousand euros and 31,292 thousand euros, respectively.
We have considered this area as a key audit matter since due to the relevance of the amounts involved and the uncertainty that has existed throuqhout the process reqardinq the outcome of the arbitration, which has required the makinq of estimates by the Directors of the Parent Company based on the opinions of the Group's eqa advisors.
The information regarding the valuation standards applied and the corresponding breakdowns is included in notes 3.3 and 3.3.a of the consolidated financial statements.
Our response
Our audit procedures regarding this area included, among other, the following:
Understanding of the process established by Group Management for the recoverability of this asset, evaluation of the design and implementation of the relevant controls established in the aforementioned process and verification of the operational effectiveness of said controls.
Evaluatin9 compliance with the terms and conditions of the contracts and agreements between shareholders of GSP.
Analyzing recent relevant notifications between Peruvian official bodies and the GSP Group, as well as the documents included in the claim filed by the Parent Company with the ICSID, specifically, the award issued by said body on December 20, 2024.
Buildinq a better 3
workinq world
Holding meetings with external and independent experts in Peruvian and international law engaged by the Group Management.
Reviewing the analysis reports of this matter prepared by various Peruvian and international law experts (bankruptcy, criminal and administrative law, inter alia) and the Group's internal leqal consultants.
Evaluation of the fair value of the financial asset reqistered in relation to the compensation established in the award issued by the ICSID on December 20, 2024, as well as the impairment recorded in the Consolidated Income Statement.
Reviewing the disclosures included in the notes to the consolidated financial statements in conformity with the applicable financial reporting framework.
Regulatory framework including recognition of income and amounts receivab/es from the gas SY‹tem
Description
Our response
The Enagâs Group's main revenues as explained on note 2.1 of the consolidated financial statements, are derived from regasification, storage, and transportation of natural gas that are regulated under the framework that started as of January 1, 2021 until 2026 (as explained on Appendix III of the accompanying consolidated financial statements). Consequently, the Group's activities are notably affected by the current regulation (local, regional, national, and European).
The abovementioned factors have caused us to consider this area a key audit matter.
The information reqardinq the valuation standards applied and the correspondinq breakdowns is included in notes 2.1 and Z.2 and Appendix III of the consolidated financial statements.
Our audit procedures regarding this area included, among other, the following:
Understanding of the process established by Group Management for the recognition of income from regulated activities and receivable balances, evaluation of the design and implementation of the relevant controls established in the aforementioned process and verification of the operational effectiveness of said controls.
Reviewing the regulations from January 1, 2021 and evaluating the degree of compliance therewith.
Testinq revenue recoqnition, verifyinq its reasonableness in terms of each year's requlatory developments.
Verifying the gas system's accounts payable and receivable by examining conclusions and final settlements with the CNMC during the year.
Reviewing the disclosures included in the consolidated financial statements in conformity with the applicable financial reporting framework.
Impairment analysis of equity method investments
Description The Group's Manaqement makes significant estimates when analyzinq the impairment of investments accounted for usinq the equity method, the balance of which at December 31, 2024 amounts to 1,226 million euros and contain siqnificant implicit qoodwill. The possible loss of value is determined by analyzinq the recoverable value of the investment accounted for usinq the equity method.
EY
Buildinq a better workinq worldOur response
We have considered this area as a key issue in our audit due to the complexity inherent in the estimation process, the siqnificant impact that chanqes in the assumptions considered could have on the accompanyinq consolidated annual accounts, as well as the relevance of the amounts involved.
The information reqardinq the valuation standards applied and the correspondinq breakdowns is included in notes 1.6 and 2.7 of the consolidated financial statements.
Our audit procedures regarding this area included, among other, the following:
Understanding of the process established by Group Management for the recoverability of these assets, evaluation of the design and implementation of the relevant controls established in the aforementioned process and verification of the operational effectiveness of said controls.
Reviewing, in collaboration with valuation specialists, the reasonableness of the methodology used by the Group's Management for preparing the discounted cash flow statements of each investment accounted for using the equity method, focusing particularly on the discount rate and long-term growth rate applied.
Analyzing the financial information projected in the business plan of each investment accounted for using the equity method by analyzing historical financial information, current conditions, and expectations regarding their future performance.
Checking the mathematical accuracy of impairment models and reviewing the sensibility analysis performed by the Group's Management.
Reviewing the disclosures included in the notes to the consolidated financial statements in conformity with the applicable financial reporting framework.
Other information: consolidated Manaqement report
Other information refers exclusively to the 2024 consolidated Management report, the preparation of which is the responsibility of the parent company's directors and is not an integral part of the consolidated financial statements.
Our audit opinion on the consolidated financial statements does not cover the consolidated Mana9ementreport. Our responsibility for the consolidated Manaqement report, in conformity with prevailing audit requlations in Spain, entails:
Checkinq Oily that the consolidated non-financial statement and certain information included in the Corporate Governance Report and in the Board Remuneration Report, to which the Audit Law refers, was provided as stipulated by applicable regulations and, if not, disclose this fact.
Assessing and reporting on the consistency of the remaining information included in the consolidated Management report with the consolidated financial statements, based on the knowledge of the Group obtained during the audit, in addition to evaluating and reporting on whether the content and presentation of this part of the consolidated Management report are in conformity with applicable regulations. If, based on the work we have performed, we conclude that there are material misstatements, we are required to disclose this fact.