07 annual report 07 annual report summary INDEX

LETTER FROM THE CHAIRMAN 4 MAIN FIGURES AND MILESTONES FOR THE YEAR 9 Main Figures 10 Milestones reached in 2007 12 GOVERNING BODIES 14 Board of Directors 16 Committees 17 Company Structure 18 FINANCIAL INFORMATION AND BUSINESS ACTIVITIES 19 Evolution of Results 20 Business Activities 23 3 STOCK MARKET INFORMATION 27 ACTIVITIES OF THE BUSINESS LINES 31 Duro Felguera Energía 32 Mompresa 34 Opemasa 35 Duro Felguera Plantas Industriales 36 Felguera Montajes y Mantenimiento 38 Feresa 40 Felguera Calderería Pesada 41 Felguera Melt 42 Felguera Rail 43 Tedesa 44 Felguera Construcciones Mecánicas 45 Felguera - IHI 46 Montajes Eléctricos Industriales 47 Duro Felguera around the world 48 CORPORATE RESPONSIBILITY REPORT 49 DIRECTORY 65 CORPORATE GOVERNANCE REPORT 69 ECONOMIC AND FINANCIAL REPORT 93 Consolidated Annual Accounts and 94 Directors’ Report for 2007 Duro Felguera, S.A. Annual Accounts and 151 Directors’ Report for 2007 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO 2

© Duro Felguera, S.A. 2008 Design, desktop publishing and production: Gráfik Estudio, Multiplicamos las Ideas Printers: Eujoa Artes Gráficas. INDEX

LETTER FROM THE CHAIRMAN 4 MAIN FIGURES AND MILESTONES FOR THE YEAR 9 Main Figures 10 Milestones reached in 2007 12 GOVERNING BODIES 14 Board of Directors 16 Committees 17 Company Structure 18 FINANCIAL INFORMATION AND BUSINESS ACTIVITIES 19 Evolution of Results 20 Business Activities 23 3 STOCK MARKET INFORMATION 27 ACTIVITIES OF THE BUSINESS LINES 31 Duro Felguera Energía 32 Mompresa 34 Opemasa 35 Duro Felguera Plantas Industriales 36 Felguera Montajes y Mantenimiento 38 Feresa 40 Felguera Calderería Pesada 41 Felguera Melt 42 Felguera Rail 43 Tedesa 44 Felguera Construcciones Mecánicas 45 Felguera - IHI 46 Montajes Eléctricos Industriales 47 Duro Felguera around the world 48 CORPORATE RESPONSIBILITY REPORT 49 DIRECTORY 65 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO LETTER FROM THE CHAIRMAN

Putting our vision 1into practice has also Dear shareholder: made one of our ambitious objectives It has been five years since I took on the possible, though it had not been exposed responsibility of presiding over Duro previously so as not to create expectations Felguera. Enough time for a large number that would have been difficult to fulfil: to of the ideas that make up our vision of overcome the 1,000 million-euro barrier the company to have consolidated and, in order intake, an undoubtedly significant above all, for these ideas to be reflected milestone and which places our company in the balances and income statements on another level. of the company. Going over the most noteworthy data Throughout all this time we have tried for the year, you will see that turnover to build a company that would be different has gone from 566 million euros in 2006 in its essence, that would respond to the to 850 in 2007, representing a 50% 4 substantial changes happening in the times increase. With reference to profits before we live in and, coherently, would leave tax, the 40 million euros of the previous behind the core business that once was year have become 60 million, with the the manufacture of capital goods same percentage increase, and the equipment, putting all its strengths into EBITDA for the group is situated at 63 play to become an engineering and million euros in comparison to the 44 of integrated management company for large the previous year. projects. The taxable income has been expended This task was, more than necessary, vital. meaning that tax rates this year have gone We haveturned The accelerated worldwide economic up to 25.8% in comparison to last year’s into an changes with the entry of countries with 10.5%, signifying that, in absolute figures, engineering lower manpower costs onto the net profits after tax have gone from 34 andintegrated international business scene meant that million euros in 2006 to 42.5 million in management we had to design a company model that 2007, with a rise of 25%. company for would be competitive on a global scale, that would foster the “exportable” Personnel costs have risen by 10%, in largeprojects business activities and that would give us comparison to the above mentioned 50% a more international dimension, which increase in turnover and pre-tax profit meant that it was imperative that our and so the percentage of personnel costs fixed assets and production means should over sales has fallen from 17.7% to 13%. fade into the background to allow our This corroborates our move to another professionals and their knowledge to type of business.

LETTER FROM THE CHAIRMAN become the focal point of the company’s capabilities. Order intake for the year was 1,003 million euros which situates backlog as of So, I believe that the 2007 financial year 31 December at 1,266 million, a figure reflects these basic ideas using all terms that allows us to consolidate the current and parameters to measure management: turnover for at least the next three years. large projects have represented 56% of the EBITDA of the group and 80.5% of In terms of balance, cash corresponding turnover. This segment of activity also to advances received for major orders contributed 82% of order intake and has continued to increase: cash and 92.3% of backlog. temporary financial investments as of 31 million euros. the lastyear goingfrom8.7millionto18 hasdoubled itsEBITDAworkshops- in example, line-our themanufacturing And notonly that, but also, asaclear-cut tothefinala majorcontribution results. is thatallofthebusiness lineshave made significant mainfigures. The mostimportant business lines, thereare someespecially With regardtotheactivitiesof employment figure by 22%. sector whilstourcompany reducedthe of21%inmanpowerby arise inthe Felguera. These increaseswere achieved by 35%, comparedto148%atDuro increased by 222%; sectorturnover rose order intake by 63%whilstourcompany years, we canseethatthissectorincreased SERCOBEfor thelastfiveorganisation reference thedatafrombusiness companies intheSpanishsectorusingas withtheaverage forFelguera engineering If we comparecompetitiveness ofDuro euros. debtwasat34.8million whilst short-term bankdebtswere at35.4million,long-term December totalled314millioneuros; our company hasmadea “Over thelastfew years scale changeinsize” of industrial andpower facilities. of industrial generation group’s activityrelated totheconstruction andinthemain areasofthe countries haslivecurrently projectsina dozen the UKandFrance. And so, DuroFelguera area especially for thepower sectorin intheservices withcontracts new markets centred onItaly, we were able togetinto In Europe, whereourpresencewas Venezuela, Peru and Argentina. beingexecuted inMexico,to thecontracts we alreadyhadongoingactivitiesthanks for usandwhere zone thatisapriority reinforcing our presenceinageographical Latin America: ChileandBrazil, thereby in 2007 we enteredtwo newmarkets activity.growing international During afutureof euros andtherefore assuring backlogof528.2million international million euros, toan contributing Order intake fromabroadreached328 multiplied by threeandahalf. inthefuture,for oursecurity was before taxby sixandbacklog, themeasure multiplied orderintake by three, profits in size hasoccurred. Infive we have years willseethatascalechange last few years ofthiscompanythe performance in collective effort. Anyone whohasfollowed that behindthesefigures lays anenormous group. However, itgoeswithoutsaying positively, themanagementresultsfor the coldly but alsoinour opinion, very These arethemainfigures thatsumup, EBITDA over salesof16.4%. obtained anotable of profit interms from abroad-46.3%andStorage reached halfofthetotalfigure for orders Plantssub-segmentalmost Industrial as of31December. Inaddition, the 55% oforderintake and59%ofbacklog the group, 55%tobeexact, aswell as more thanhalfofthetotalturnover for are thatthePower sub-segmentsignified milestones Other especially noteworthy

DURO FELGUERA 07 ANNUAL REPORT 5 LETTER FROM THE CHAIRMAN1

We also thought that is was vital to open no doubt will have to be international, up a business centre in the USA, where given the volumes with which we work. the key OEM’s, customers, associates and suppliers are located to aid our Reality continues to confirm our business Globalization has development in Latin America. We have focus. The sectors of activity which we already opened up a commercial office have concentrated on in the last few years encouraged in Florida which will reinforce our are precisely the basic industries that the commercial activities in this area. globalisation effect has most encouraged: the sectors gas, power, oil and minerals. And, at the which we have been It is evident that the percentages of growth same time, the change from manufacturer concentrating on:power, that we have achieved in the last few to integrator has been made without gas, oil and financial years are very difficult to maintain major learning costs. over large periods of time. A company minerals that sustains its business on its capacity But we are running a race that has no 6 to transmit confidence to its customers finishing line. That is why, far from being as a consequence of the efficiency and satisfied, we know that backlog must be quality it offers must take firm and sound more stable, business with recurring profits steps even if they are not spectacular. must be identified, our international After this rise we must assure our presence must be intensified, and finally achievements. Years of experience have the figures we are presenting must be shown on repeated occasions how easily given even greater quality, i.e. greater others have lost many years of great stability. A good investment position is effort, and our prudence and risk working in our favour. estimations advise us to continue growing little by little, step by step. We are going Our balance and our financing capacity to optimise the economic results of all allows us this, so we will make the most our projects by combining them with the of any opportunity that we are already satisfaction that we always give our searching for systematically and for which customers and, at the same time, we will we have created the post in the last few increase our base of professional months of an Acquisitions and Investments employees and this will allow us to take General Manager. another leap in quality of growth which In the previous year, we acquired 82% of shares in an electrical engineering and erection company, Montajes Eléctricos Industriales, S. A., that has more than 30 years experience in the sector and will

LETTER FROM THE CHAIRMAN assure quality and execution schedules for the electrical side of our turnkey projects.

We will reinforce our capacity to innovate, because the best way to foresee the future is to create it, and to create is to innovate. This company would not have reached its current position if a considerable culture of innovation did not lay behind its daily activities; innovation greater volume of share trading was greater volume ofshare trading especially onthestockmarket. Whilst a more “visible” and inthebusiness world made itpossible for the company tobe toexplainhas that Iamtrying everything This greaterdynamismthatunderlies which we all share. but alsooftheir valuesandcommitment, notonly oftheirexperience transmission with theirclasses, anefficient assuring compatible work make theireveryday have toitssuccessandthey contributed inthecompanyprofessionals working excellent practices. ofthe part A large forhas beenawarded prizes its several decided. centre Ourprofessional training ago andwhichisever and morefirm a stake for thefuture, years madeseveral how isatthecentreofitscapacities. Itis be otherwiseinacompany whoseknow- into thebasicpillarofourfuture. Itcannot ourgroup entering the young engineers professionals withtheintentionofturning ofour changeintheagepyramid radical area, onthetraining of energy makinga We arealsospendingnotable amounts innovation activities. time bethecoordinationcentrefor our lines ofourbusiness andwillatthesame Gijón whichwillhousetheengineering in at anadvancedstageofconstruction engineering, qualityandI+D+ibuilding is innovation andprofessional training. An ourcapacityfor investment,to raise of Government ofthePrincipality Asturias reciprocal agreementwiththe (I+D+i). We have recently cometoa Research, Development andInnovation euros toactivitiesdirectly relatedto sixmillion In 2007we assignednearly the way itcreatescustomerrelationships. more importantly, and in our organisation and productsbut also, andsometimes in creatingorimproving ourprocesses initswidestsense,understood notonly years we mustyears consolidateour “After themajorimprovement in resultsover thelastfew dividend payment of0.30euros pershare we willalsoproposetothe AGM atotal 2007 andthesecond inMarch2008, and dividend payouts, inDecember thefirst decidedontwo The BoardofDirectors capital turnover situatedat79.2%. volume was 319,256shares, withanannual Over 2007theaverage daily trading by theIbex35. index anddoubled thatachievedgeneral words, we ofthe have therise tripled of16.96%. arise experienced Inother by 7.32%, for ourcompany theshareprice by 5.6%in2007andtheIbex35increased went up de laBolsaMadrid) General Index(Índice Stock ExchangeGeneral reference indexes. Whilst theMadrid been greatly favourable withregardto has Our evolution onthestockmarket with theUnitedNations World Compact. hasrenovated itscommitment Felguera andDuro inoursubsidiaries largely and theenvironment have beenmade improvementsin 2007several inquality where we execute projects. Inaddition, development insomeofthecountries are based, tolocal contributing initiatives intheareaswherewecultural and onbackingnumerous socialand will improve ourproductsandservices, that on innovating asoneofthe supports onthemarket,being moretransparent communication withinthecompany, on ourprofessionals,on training onimproving outourbusiness,we we carry have staked committed totheenvironment where As asocially responsible company and York. analysts inMadrid, London, andNew Paris presentationstoexpert made various inatimely mannerandhavemarkets financial year, we have the informed by moreanalysts. Throughout thelast occurring, ourvalueswere beingfollowed achievements”

DURO FELGUERA 07 ANNUAL REPORT 7 1 Chairman Juan Carlos Torres Inclán Torres Juan Carlos LETTER FROM LETTER THE CHAIRMAN of a team that is committed to the values, of a team that is committed effortculture, of this and objectives that in 2008 is A company company. commemoratinghundred and fifty its one Duro set since Pedro years of existence, the embryo of the current up Duro y Cía, Duro Pedro I am sure that Duro Felguera. and a be proud to see that one would half centuries he company later the looks because it remains young founded and wants to the future with optimism, and innovative more global, to be ever without but committed to know-how turning its employees forgetting its roots; and its customers into its main assets with of maintaining a continuous the objective in profits. growth historyThis long company has generated feel the employees principles and values; and its with the company identified and it has forged a special surroundings, of the of interests that is one community to its success. keys is the best alive this enthusiasm keep To and founder, to our tribute can make we our deepest gratitude goes out to our shareholders their confidence. for and consequently the correspondingand consequently complementary our dividend for - “payout” the And thus, shareholders. that the company percentage of profits dividends- will reach 72%. sets aside for Advisory in 2007 an On another note, Committee was set up made up of prestige in the of renowned professionals academic and business Spanish economics, It is a consulting body formed by worlds. Economics Baeza, Emilio Ontiveros of officer and chief executive professor Asesores Financieros Internacionales; engineer and economist, Aranzadi, Claudio Commerce and Industry, ex-minister for Antonio Fernández Segura, Tourism; economist and ex-secretary general for Eduardo Sánchez Morrondo, Energy; chemist and ex-chairman of Dow Acacio Faustino and Chemical Europe, engineer and member Rodríguez García, of the Duro Felguera Board of Directors. AdvisoryThe Committee deals with matters the development of interest for special paying business, of the company’s attention to the international markets. tried to Throughout this letter I have the great enthusiasm for my convey a project in process; have project that we that is the consequence of teamwork and company

know-how

We want to be We a global,

and committed to innovative

8 LETTER FROM THE CHAIRMAN MAIN FIGURES AND MILESTONES FOR THE2 YEAR

All figures shown both in the income statement and balance sheet increasedhave considerably in2007 MAIN FIGURES FOR 2007

INCOME STATEMENT (Million euros)

Consolidated data 2003 2004 (*) 2005(*) 2006(*) 2007(*) Sales 342.89 319.86 511.19 566.44 849.70 National 152.98 185.84 320.94 385.62 532.20 International 189.91 134.02 190.25 180.82 317.50 LABOUR COST 92.88 82.08 94.84 100.14 110.30 PROFIT BEFORE TAX -8.48 10.14 20.57 40.02 60.13 PROFIT AFTER TAX -10.36 7.70 24.91 35.82 44.60 (*) Figures calculated using International Financial Reporting Standards

BALANCE SHEET (Million euros) Consolidated data 2003 2004 (*) 2005(*) 2006(*) 2007(*) NON-CURRENT ASSETS 81.75 125.14 131.68 125.68 133.11 Property, plant & equipment 54.03 95.20 96.96 97.15 101.77 CURRENT ASSETS 186.23 255.17 350.58 480.66 718.72 Cash & cash equivalents 24.13 44.20 100.31 210.04 314.03 TOTAL ASSETS 267.98 380.31 482.26 606.34 851.83 EQUITY ATTRIBUTABLE TO PARENT COMPANY 53.27 78.49 95.14 119.49 141.89 MINORITY INTERESTS 7.10 6.30 7.61 7.86 9.81 DEFERRED INCOME 6.32 10.49 9.83 9.90 11.33 10 NON-CURRENT LIABILITIES 17.68 47.53 57.91 45.19 54.79 Long-term bank debt 14.82 25.95 31.20 18.66 10.01 CURRENT LIABILITIES 183.61 237.50 311.77 423.90 634.01 Short-term bank debt 34.83 56.54 26.25 7.68 31.31 TOTAL LIABILITIES & EQUITY 267.98 380.31 482.26 606.34 851.83 (*) Figures calculated using International Financial Reporting Standards

OTHER FIGURES (Million euros)

Consolidated data 2003 2004 2005 2006 2007 ORDER INTAKE 311.13 767.05 725.59 760.38 1,003 BACKLOG 352.77 718.58 971.13 1,186.57 1,266 AVERAGE WORKFORCE 2,723 1,946 1,934 1,951 2,113 MAIN FIGURES MAIN CONTRACTS Belgium Spain USA Spain USA Spain USA Spain Spain MANUFACTURING Spain Spain Francia Spain Inglaterra Argentina Chile SPECIALISED SERVICES Spain Brazil Arab Emirates Venezuela Spain Spain Chile Spain Spain Spain Spain Argentina INTEGRAL MANAGEMENT OFLARGEPROJECTS

Iba Eozen Mustang /Sinclair Sener /Petronor Fluor / Valero Ferrovial-Agroman, S.A. GE Wind Energy, Llc Sacyr Gamesa Alstom Power Centrales Arcelor España Alstom Cotersa SWC Endesa Generación Petrobras GHC Orinoco Ferrominera Enagas Cepsa CrossGroup Southern Gas Natural Endesa Gesa-Endesa Iberdrola Fideicomiso JosédeSanMartín

MILESTONES FOR THE YEAR treatment orpositioning equipmentfor for protonray cancer Three gantries 67 setsofrotor, statorandclosing flange andvacuumtowers Crude HDS Reactor Two coke drums A.D.V. Madrid-Valladolid CTT parts Supply ofwindpower foundry A.D.V. UTECastellbisbal/ Alcazar Manzanares Supply ofwind power parts IVCombinedCyclePowerMechanical erectionatSotoRibera Plant Overhaul ofunitsI&II As Pontes Power Plant Cycle Power Plant andturbinesatCycofos Combined Mechanical erectionofboilers Supply, anderectionofhighpressurepiping prefabrication BoftheGijónfactory stoppageatblast furnace Intermediate Mechanical erectionofLangageCombinedCyclePower Plant CombinedCyclePower Plant atSanMartín Erection ofalternators atCardonesPowerErection ofalternator Plant plantatCompostilla Revamping ofthefuelstorage Bay (RiodeJaneiro) and Guanabara ofPecem (Fortaleza) gasattheports for natural Unloading terminals Unloading hopper of equipmentfor phaseII plantandextension Spares for phaseIoftheironoreconcentration ofBarcelona Port Two tanks(150,000m3)for the gasstorage liquefied natural Various tanksandspheresfor Huelvarefinery SimpleCyclePowerTierra Amarilla Plant(150MW) deBarcelonaCombinedCyclePower Plant(800MW) Puerto Besós V CombinedCyclePower Plant(800MW) Cas Tresorer IICombinedCyclePower Plant(230MW) Lada FlueGasDesulphurization CombinedCyclePower Plant(800MW) San Martín MAIN FIGURES AND 2

DURO FELGUERA 07 ANNUAL REPORT 11 MILESTONES FOR THE YEAR April The investors of the company Felguera January Biodiésel Gijón made an equity outlay of 25% to set up a biodiesel plant at the Duro Felguera is awarded via the Power port of El Musel. Participating in the project Systems line of business, a second contract are Duro Felguera, Corporación Marítima in Argentina to construct the San Martín Lobeto Lobo, Alvargonzález and Sociedad combined cycle power generation facility Regional de Promoción del Principado (800 MW), near Rosario (Santa Fe de Asturias. province). The Board members TSK, Electrónica y February Electricidad, S. A., and PHB WeserHütte, S. A., presented their resignation as The first phase of the iron ore members of the Duro Felguera Board of concentration plant is inaugurated which Directors. the Industrial Plants line is executing in Venezuela for Ferrominera Orinoco. The Presentation of the first quarter results political and business authorities of the for the 2007 financial year. Consolidated country and representatives of the profit after tax rose by 75% reaching 7.64 Principality of Asturias government million euros. attended the ceremony.

Award of the the Fundación Marino Gutiérrez-Duro Felguera prize at the Asturias International Trade Fair, coinciding May with the celebration of its 75th anniversary. The Duro Felguera shareholders’ AGM Presentation of the 2006 financial year was celebrated on 3rd May. The number results. Net consolidated profits rose by of Board members is reduced from 12 43.8% to 35.8 million. Turnover improved to 10. by nearly 11%, reaching 566.4 million. Duro Felguera manages to get onto the Brazilian market via its Industrial Plants line thanks to a contract with the 12 multinational Petrobras to construct two gas terminals at the ports of Pecem and Guanabara.

The company’s landing in Participation in the MedCap 3rd Forum for small and medium capitalisation public Brazil, Chile and the UK companies organised in Madrid by Bolsas extends the y Mercados Españoles. Presentation of the company in London international before a group of investors. presence of the group

June

Duro Felguera’s corporate intranet goes into operation. DfNet is conceived as a March portal for the employee to manage work tools and an internal communication Felguera Calderería Pesada sends off the channel. largest columns ever manufactured in one sole piece in the world from its dock in The Centre for Specialisation in Advanced Gijón destined for a refinery in Saudi Techniques (Centro de Especialización Arabia. en Técnicas Avanzadas, CETA-DF)

MILESTONES FOR THE YEAR inaugurates its second training programme Payment of a gross cash dividend of 0.05 which is aimed at middle management euros per share from 2006 profits. and in which 23 technical engineers participate. Publication of the Annual Corporate Governance Report, available on the Duro Duro Felguera participates in the Felguera website. international power fair Power-Gen Europe, celebrated in Madrid and at the Presentation of the company in Madrid Salón Internacional de la Logística (SIL), before a group of international investors. celebrated in Barcelona. July November Felguera-IHI achieves a record contract for liquid natural gas storage at the Port Publication of the third quarter results of Barcelona. for 2007. Consolidated net profits rise to 33.5 million euros, an inter-annual growth The 150th anniversary of placing the first of 50.5%. stone of the factory that Pedro Duro set up in La Felguera (Asturias) is comme- The Madrid and Barcelona stock morated on 26th July. exchanges are the venue for the two presentations that the company makes The company’s training centre CETA-DF before investors and financial analysts. is awarded a prize for good practices in human resources management (Premio a las Buenas Prácticas en la Gestión de Recursos Humanos) for its Master in Industrial Project Management (Master en Dirección de Proyectos Industriales) by the government of the Principality of Asturias.

Presentation of the first half results for ‘ the 2007 financial year. Consolidated profits improved by 76.5% in inter-annual 07 terms, rising to 20.2 million euros. October

Presentation of Duro Felguera before a group of investors in New York.

The fourth Master in Industrial Project Management is inaugurated at the CETA- DF aimed at top management, with the participation of 23 engineers. December

Duro Felguera Energía starts the The first contract for the company in the construction of the Tierra Amarilla UK. Mompresa is awarded with the 13 combined cycle power generation facility mechanical erection and commissioning in Chile, the first project that the company of alternators and auxiliary equipment at executes in this country. an 850 MW combined cycle power generation facility located in Plymouth. August Payment of a gross cash dividend of 0.07 Duro Felguera dedicates its stand to euros per share from 2007 profits. infancy at the Asturias International Trade Fair and collaborates with Unicef in raising José Luis García Arias presents his funds for the children of Africa. resignation as vice-chairman of the company.

September EBN Bank informs the CNMV (Stock Market Commission) of the purchase of Company directors carry out a presen- 6% of Duro Felguera’s equity. tation of Duro Felguera before analysts in Madrid. Duro Felguera reinforces its presence in Argentina thanks to a contract with the Duro Felguera is awarded three contracts Brazilian multinational Petrobras to for the same number of combined cycle construct an open cycle power generation power generation facilities in the Balearic facility in Ezeiza (Buenos Aires). Islands and Catalonia.

The company Montajes Eléctricos Industriales (MEI) is acquired with the objective of complementing the range of services that the group offers. The works start Foundation stone laying ceremony for on the the new Duro Felguera Engineering, R&D new and Quality Centre (Centro de Ingeniería, I+D+i y Calidad) at the Parque Científico engineering Tecnológico de Gijón.

Angel Antonio del Valle Suárez, member and R&D of the Board, is appointed Acquisitions and Investments General Manager. centre Fernando Fano Fernández takes on the 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO management of Human Resources. ÓRGANOS DE GOBIERNO GOVERNING BODIES3

The Management Commitee was reinforced with a newAcquisitions and Investments Manager GOVERNING BODIES

BOARD OF DIRECTORS 3

16

CHAIRMAN Mr. Juan Carlos Torres Inclán VICE-CHAIRMAN Mr. José Luis García Arias MEMBER TSK Electrónica y Electricidad, S. A.• (represented by Mr. Sabino García Vallina) MEMBER PHB Weserhütte, S. A. • (represented by Mr. Carlos Vento Torres) MEMBER Inversiones Somió, S. L. (represented by Mr. Juan Gonzalo Alvarez Arrojo) MEMBER Inversiones el Piles, S. L. (represented by Mr. Angel Antonio del Valle Suárez) MEMBER Construcciones Urbanas del Principado, S. L. (represented by Mr. Manuel González González••) MEMBER Construcciones Termoracama, S. L. (represented by Mr. Ramiro Arias López) MEMBER Residencial Vegasol, S. L. (represented by Mr. José Antonio Aguilera Izquierdo) MEMBER Mr. Marcos Antuña Egocheaga MEMBER Mr. Acacio Faustino Rodríguez García MEMBER Mr. José Manuel Agüera Sirgo CORPORATE GENERAL MANAGER Mr. Florentino Fernández del Valle

GOVERNING BODIES (NON-DIRECTOR) SECRETARY NON-DIRECTOR Mr. Guillermo Quirós Pintado LEGAL ADVISOR Mr. Agustín Tomé Fernández HONORARY CHAIRMAN Mr. Ramón Colao Caicoya

• Left the Board on 04-17-2007 •• Replaced by Mr. Javier Sierra Villa on 11-26-2007 COMMITEES

17 MANAGEMENT COMMITTEE CHAIRMAN Mr. Juan Carlos Torres Inclán CORPORATE GENERAL MANAGER Mr. Florentino Fernández del Valle GENERAL MANAGER ASSISTANT TO CHAIRMAN Mr. Antonio Martínez Acebal ACQUISITIONS AND INVESTMENTS Mr. Angel Antonio del Valle Suárez GENERAL MANAGER CHIEF FINANCIAL OFFICER Mr. Mariano Blanc Díaz POWER SYSTEMS LINE MANAGER Mr. Francisco Martín Morales de Castilla INDUSTRIAL PLANTS LINE MANAGER Mr. Félix García Valdés AUDIT COMMITTEE CHAIRMAN Mr. Marcos Antuña Egocheaga MEMBER Mr. Juan Carlos Torres Inclán MEMBER Mr. José Manuel Agüera Sirgo MEMBER Inversiones Somió, S.L. (represented by Mr. Juan Gonzalo Álvarez Arrojo) SECRETARY NON-MEMBER Mr. Secundino Felgueroso Fuentes COMMITTEE FOR APPOINTMENTS, REMUNERATION AND EXPEDITING OF STANDARDS CHAIRMAN Construcciones Termoracama, S. L. (represented by Mr. Ramiro Arias López) MEMBER Inversiones el Piles, S.L. (represented by Mr. Ángel Antonio del Valle Suárez) MEMBER Residencial Vegasol, S. L. (represented by Mr. José Antonio Aguilera Izquierdo) MEMBER Mr. Acacio Faustino Rodríguez Álvarez SECRETARY NON-MEMBER Mr. Guillermo Quirós Pintado LEGAL ADVISOR NON-MEMBER Mr. Agustín Tomé Fernández

INTERNAL GROUP OPERATION COMMITTEE CHAIRMAN Inversiones el Piles, S. L. (represented by Mr. Ángel Antonio del Valle Suárez) MEMBER Construcciones Urbanas del Principado, S. L. (represented by Mr. Javier Sierra Villa) MEMBER Mr. José Manuel Agüera Sirgo SECRETARY NON-MEMBER Mr. Secundino Felgueroso Fuentes

LEGAL ADVISOR NON-MEMBER Mr. Agustín Tomé Fernández REPORT ANNUAL FELGUERA 07 DURO GOVERNIG BODIES 3

COMPANY STRUCTURE

PROJECTS & ENGINEERING INFRASTRUCTURES & SERVICES

POWER INDUSTRIAL ASSOCIATED EQUIPMENT 18 SYSTEMS PLANTS COMPANIES

Duro Felguera Felguera Duro Felguera, S.A. Plantas Felguera IHI, S.A.* (Energía) Construcciones Industriales, S.A. Mecánicas, S.A.

Felguera Parques y Minas, S.A. Montajes Eléctricos Montajes de Maquinaria Felguera Calderería MHI - Duro Industriales, S. L. de Precisión, S.A. Felguera Grúas Pesada, S.A. Felguera , S.A.** (MOMPRESA) y Almacenaje, S.A. (MEI)

Operación y Técnicas de Felguera Montajes y Mantenimiento, S.A. Felguera Tecnologías Felguera Melt, S.A. de la Información, S.A.* Entibación, S.A. Mantenimiento, S.A. (OPEMASA) (TEDESA)

Proyectos e Ingeniería Felguera PYCOR, S.A. de C.V. Felguera Rail, S.A.* Revestimientos, S.A. (PYCORSA)

GOVERNING BODIES * Majority shareholding ** < 50% shareholding FINANCIAL INFORMATION AND BUSINESS ACTIVITIES 4

Growth in profits, sales and order intake have taken the company into a different scale FINANCIAL INFORMATION AND BUSINESS ACTIVITIES

EVOLUTION OF RESULTS

CONSOLIDATED PROFIT In 2007 Duro Felguera achieved a signi- were 42.5 million4 euros, a figure that BEFORE TAX ficant improvement for all of the items of surpasses 2006 by 24.9%. Mill. euros its income statement, reaching all the 70 60.1 objectives estimated for the year and EBITDA at 31 December 2007 was 63.3 60 consolidating its position as one of the million euros, improving by 43.6% relative 50 foremost Spanish companies in the to the preceding year. The three segments 40 40 execution of large industrial projects, with of business made a favourable contribution an increasing international presence. For to this result, especially integral 30 20.6 the first time ever the company surpassed management of large projects in the 20 10.1 the 1,000 million-euro mark in order power systems, industrial plants and fuel 10 intake and maintained its backlog figures storage areas which increased EBITDA -8.5 0 at historical maximums. by 18.4%, reaching 39.5 million euros. The

-10 power sub-segment attained 15.9 million, 2003 2004 2005 2006 2007 Consolidated profit before tax at year signifying an inter-annual growth of 27.6%; 20 close rose to 60.1 million euros, denoting the industrial plants area increased by an increase of 50% in relation to the 6.5% to 12.8 million euros and finally, the previous year when gross profit reached fuel storage area grew its EBITDA by 40 million. The three segments of activity 21.5%, gaining 10.8 million. (integral large project management, specialised services and manufacturing) made positive contributions to the year’s EBITDA results. Mill. euros 63.3

Tax rate went from 10.5% to 25.8% as a 44.1 result of the fiscal credit finalization and the consequent negative taxable incomes 27.4 for losses in previous years. This circumstance explains why net consoli- 16.6 12.9 dated profit registered an increase of 24.5% in comparison to the previous year, rising to 44.6 million euros. In addition, profits attributable to the parent company 2003 2004 2005 2006 2007

CONSOLIDATED PROFIT AFTER TAX Mill. euros 50 44.6

40 35.8

EVOLUTION OF RESULTS 30 24.9

20 7.7 10 -10.4 0

-10

-20 2003 2004 2005 2006 2007 “Duro Felguera has consolidated its position as one of the foremost Spanish companies in the execution of large industrial projects”

DISTRIBUTION OF AGGREGATE Sales evolution throughout the 2007 EBDITA BY SEGMENTS financial year was also highly favourable; the upward trend was maintained, in line with what had occurred during these last Mill. euros 39.5 40 few years, reaching record levels for the 35 Power systems: 15.9 company. Industrial Plants: 12.8 30 Storage: 10.8 At year close turnover was at 849.6 million 25 18.2 euros, signifying an increase of 50% in 20 relation to last year and 283.6 million in 13 15 absolute terms. Sales abroad amounted 10 to 317.5 millions euros, accounting for

5 37% of the overall turnover, five points above the previous year’s figure. Growth 0 INTEGRAL SPECIALISED MANUFACTURING MANAGEMENT SERVICES of international sales compared to 2006 21 OF LARGE PROJECTS was 75.6%, almost doubling those made The specialised services segment closed on the domestic market. the year with an EBITDA of 13 million euros, which represents a 17.8% increase with respect to the previous year, whilst manufacturing carried out in the group’s SALES workshops obtained 18.2 million euros, Mill. euros 109.3% more than in 2006, largely as a 849.6 consequence of the good moment that the petrochemical industry is going 566 through, for which Felguera Calderería 511 342.9 Pesada works, and the results of the 320 reduction in the workforce carried out the previous year in Felguera Cons- trucciones Mecánicas. 2003 2004 2005 2006 2007

Distribution of turnover by segments once again evidences the leading role played by the large projects business throughout all of Duro Felguera’s operations, as sales reached 683.7 million euros, a figure that represents 80% of the total for the group. With regard to the previous year, turnover for this segment experienced an increase of 63.7%, with the power systems area rising above the rest and surpassing 110%, as well as industrial plants which came close to 30%.

Sales registered for the specialised services segment showed an increase of 21.2% in 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO FINANCIAL INFORMATION AND BUSINESS ACTIVITIES 4

EVOLUTION OF RESULTS

Personnel costs rose by 10.2% compared to a 50% growth in turnover and profit before tax, meaning that the percentage of personnel costs over sales went from the 17.7% of the previous year to 13%.

SALES DISTRIBUTION BY MARKETS

22

Domestic market 63% International 37% market

the year, reaching 59.5 million euros. And the manufacturing segment turnover amounted to 106.2 million, 13.2% more than the previous year.

During 2007 Duro Felguera maintained the high margins that it had reached in As far as the balance is concerned, during the preceding year, situating profit before 2007 cash continued to increase due to tax over total sales (PBT/sales) at 7.1%, down payments made by customers for a highly significant level within the sector high-value contracts. Cash and temporary where the company carries out its financial investments at 31 December business. was 314 million. Long-term bank debt which had risen to 35.4 million, suffered SALES DISTRIBUTION an increment of 9.6 million euros as a BY SEGMENTS consequence of the leasing contract signed to acquire office buildings. Short-term Mill. euros debt, at 34.8 million, included local financing

700 683.7 for projects abroad.

EVOLUTION OF RESULTS 600 Power systems: 464.4 500 Industrial Plants: 154.3 Storage: 65 400

300

200 106.2 59.5 100

0 INTEGRAL SPECIALISED MANUFACTURING MANAGEMENT SERVICES OF LARGE PROJECTS BUSINESS ACTIVITIES International market International Domestic market Total orderintake EVOLUTION OFORDERINTAKE (Millioneuros) 2003 232 311 79 2004 184 583 767 financial years. 30% above any ofthepreviousthree agoandisalso higher thanfour years 1,000 millioneuros, whichisthreetimes achieved orderintake figure ayearly over thecompany timeinitshistory For thefirst volumes ofnewcontracts. showed in manufacturing) aclearrise projects, and large specialisedservices is involved managementof in(integral all thesegmentsofactivitythatgroup notingthat of themarket. Itisalsoworth share activities whereithasaconsiderable andin where itwasalreadyoperating presence wasconsolidatedincountries openedup,new markets thecompany’s record orderintake andbacklogfigures, of qualityandquantity; inadditiontothe made asignificant breakthroughinterms In 2007DuroFelguera’s business activities 25% 75% 2005 227 499 726 2003 EVOLUTION OFORDERINTAKE BYMARKETS 2006 534 226 760 24% 76% the company surpassed INTERNATIONAL MARKET “For the first timeever “For thefirst 2004 the 1,000million-euro mark inorderintake” mark 1,003 2007 328 675 69% 31% 2005 Montajes Eléctricos Industriales (MEI)in Industriales Montajes Eléctricos reinforced when thegroupacquired The segmentofspecialisedservices, 12.4%. madeuptheremaining 20.6% andstorage area, plantsamountedto whilstindustrial this segmentwere inthepower systems in absoluteterms. Two in thirdsoforders 90%ofthegroup’snearly totalincrease equivalent toa209million-eurorise, i.e. contracts. Inter-annual growth was34%, intake, totalling822millioneurosinnew areas represented82%oftheyear’s order systems, plantsandfuelstorage industrial thepower projectscomprising large managementof The segmentofintegral in theglobalorderintake figure. weight ofany oftheseareas proportional improvement didnotalterthe area,manufacturing but thisoverall andtoalesserextentinthe services projectsandspecialised for large contracts inespeciallygrowth significant occurred An analysis by segmentsshows how 242.6 millioninabsolutefigures. 32%overof nearly thepreviousyear and 1,003 millioneuros, meaninganincrement in2007totalledexactly New contracts 30% 70% DOMESTIC MARKET 2006 67% 33% 2007

DURO FELGUERA 07 ANNUAL REPORT 23 FINANCIAL INFORMATION AND BUSINESS ACTIVITIES 4

BUSINESS ACTIVITIES

ORDER INTAKE BY BUSINESS SEGMENTS

% 11 MANUFACTURING 7% SPECIALISED SERVICES

INTEGRAL 82% MANAGEMENT OF LARGE PROJECTS

24

the second half of the year, registered the Geographical distribution of order intake greatest percentage increase of order shows a predominance of new contracts intake(63.6%), attaining a volume of new in Spain; 67% of the contracts signed in orders that reached 72 million euros, 28 the year were for the domestic market more than the previous year. This activity where Duro Felguera, via its power concentrated 7% of the group’s total systems line, obtained three major order intake, slightly above the 2006 contracts to construct the same number figures. of combined cycle power generation facilities in Catalonia and the Balearic Finally, the manufacturing segment was Islands. This achievement shored up the awarded contracts to the sum of 109 company’s leading position -one which it million euros in 2007, an amount that is has maintained over several years- as 5.8% higher than last year. The activity of project executor for this type of power the workshops contributed 11% to new generation facility, and boosted national order intake, which is two points lower order intake by nearly 200% compared than in 2006. to the previous year, surpassing 674 million

EVOLUTION OF ORDER INTAKE BY BUSINESS SEGMENTS Mill. euros 822

613 585 585 Integral Management of large projects BUSINESS ACTIVITIES

196 138 94 103 109 73 44 46 44 Manufacturing 72 42 Specialised Services 2003 2004 2005 2006 2007 “Backlog is still at record levels for the company”

DISTRIBUTION OF ORDER INTAKE euros, thereby amply compensating the DISTRIBUTION OF ORDER INTAKE BY MARKETS decrease registered on the international BY GEOGRAPHICAL AREAS front.

The new projects awarded on the 1% international markets that represented 10% 33% 33% of the year’s order intake figure, i.e., 6% 328 million euros, are of significant Domestic Latin America market importance from a quality point of view Europe International for the company. The reason being that % market USA 67 throughout the year, Duro Felguera Asia increased the number of countries where it operates by signing the first contracts 83% for large projects on three markets, with a view to investment in the near future: 25 Chile, the UK and Brazil. At the same time it consolidated its presence in Argentina, where it had landed the previous year. iron ore concentration plant that is being In Chile and the UK, the company was built for Ferrominera Orinoco. awarded a contract in each country for a gas-fired power generation facility, whilst At the end of the financial year, Duro in Brazil it attained two contracts with Felguera had ongoing projects in Mexico, the multinational Petrobras to construct Venezuela, Peru, Argentina, Chile, Brazil, the same number of port terminals for France, Italy, the UK and India. The Latin gas unloading in Rio de Janeiro and American markets concentrated 83% of Fortaleza. In addition, presence on the new orders for 2007, whilst Europe Argentine market was reinforced with represented 10% of the year’s order intake another contract for Petrobras for an figure, and the rest was spread between open cycle power generation facility. Order USA and Asia. In the manufacturing area, intake volumes were also increased in a large part of the year’s production was Venezuela with new extensions to the destined for the international markets.

INTERNATIONAL ORDER INTAKE BY COUNTRY

Chile14 % Argentina22 % Brazil32 % Venezuela13 % USA6 % France5 % Others5 % UK3 % 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO FINANCIAL INFORMATION AND BUSINESS ACTIVITIES 4

BUSINESS ACTIVITIES

Of note was equipment manufactured At year close, 90% of the backlog by Felguera Calderería Pesada and corresponding to contracts pending Felguera Melt for oil refinery facilities and execution was assigned to the companies for the rail sector, respectively. in the group concerned with the large project segment, and the rest was shared In Spain the company’s presence grew in between the specialised services and the large projects sector, especially in the manufacturing business segments. power systems area -thanks to the new projects for combined cycle power generation facilities and desulphurisation plants- and in fuel storage where the contract awarded to construct two DISTRIBUTION OF THE BACKLOG BY MARKETS liquefied natural gas tanks with a capacity of 150,000 m3 each at the Port of 26 Barcelona was especially noteworthy.

Backlog at year close was at an all-time high for the company reaching 1,266 million euros, that is to say, 6.6% above Domestic % market % the previous year end. Backlog for the 42 International 58 BACKLOG EVOLUTION market domestic market peaked at 737.6 million Mill. euros 1,266 1,187 euros, which represents 58.3% of all new contracts and those pending execution 971 by the company whilst the remaining 719 41.7%, i.e. 528.2 million euros corres- ponded to the international markets. 353

2003 2004 2005 2006 2007 BUSINESS ACTIVITIES STOCK MARKET INFORMATION5 Duro Felguera share value increase was higher than the main market indexes STOCK MARKET INFORMATION

7.43 euros per share5 at year close in 2006 to 8.69 euros per share on the last trading day of 2007. This situated company market capitalization at 886.52 million euros, a ten-fold increase in just five years.

For another year running, revaluation of company shares went high above reference indexes and company shares showed among the highest income- yielding values for the shareholder on the Spanish market in 2007. In the same period, the Ibex 35 experienced a rise of 5.69%, the Madrid Stock Exchange 28 General Index was 3.88% and the Ibex Small Cap, which includes Duro Felguera, fell by 5.44%.

The evolution of theses indexes has to 2007 was another year of favourable be viewed from a scenario of unfavourable results for Duro Felguera on the stock international stock markets. After a cycle markets with a revaluation of 16.96% on of increases that lasted several years, in the Spanish stock exchange, rising from 2007 stock markets all over the world

50% Duro Felguera 40% Small Cap 30% IBEX 35 Yield 20% for the 10%

shareholder 0% was jan 07 feb 07 mar 07 apr 07 may 07 jun 07 jul 07 aug 07 sep 07 oct 07 nov 07 dec 07 19.48% -10% -20%

-30% STOCK MARKET INFORMATION

-40% Volumen (thousands) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

jan 07 feb 07 mar 07 apr 07 may 07 jun 07 jul 07 aug 07 sep 07 oct 07 nov 07 dec 07 2007 2006 2005 2004 2003 Mill. euros 0 100 90.16 116.94 200 300 245.48 CAPITALIZATION 400 (1) by theyear average shareprice. Dividendyieldcalculated asasumofdividendsreceived in thefinancial year divided 500 running, ofquantityand bothinterms of thegroup’s mainfigures anotheryear - Consolidationofsignificant growth rates evolution: aspects ofthecompany’s favourable hasbeenable tovaluevarious market the In thisenvironment ofuncertainty economies. could have negative effects onotherworld and thefear ofapossible recessionthat intheUSA situation ofthecreditmarkets processduetothe acorrection started 2007 2006 2005 2004 2003 600 700 REVALUATION CREATION OFSHAREHOLDER VALUE 170.18% 109.92% 16.96% 29.70% 757.98 800 “A ten-fold increasein 8.60% market capitalization market 886.52 in justfive years” (1) DIVIDEND YIELD figures trading ontheSpanish stock figures trading with thegreatestcapitalisationandliquidity Ibex SmallCapandthatincludecompanies indexes ofIbex35, IbexMediumCapand that at31December2007madeupthe notingthatofthe83companies It isworth for theyear. of 2.22%over themeanquotationprice three dividendsshowing anappreciation Over theyear thecompany paidout in2007was19.48%.for ourshareholders on theSpanishstockmarket, totalyield year totherevaluationof DuroFelguera If we addthedividendspaidoutover the of nextfew years. maximums andthatallows aclearerview - A backlogofprojectswhichisathistorical balancing thegroup’s business. activity creatinggreaterstabilityand - Simultaneous growth oftheareas withstrongdemands.markets on tooperate and allows DuroFelguera reduces thecyclicalaspectofbusiness expansionthat - Growing international in thesector. the companieswithhighestmargins among yields thatsituateDuroFelguera 2.52% 3.44% 3.48% 0.26% 0% TOTAL YIELD 173.62% 113.40% 19.48% 29.70% 8.86%

DURO FELGUERA 07 ANNUAL REPORT 29 STOCK MARKET INFORMATION 5

exact, showed negative profitability figures, giving even greater value to the favourable evolution experienced by Duro Felguera.

The growing interest in our company has allowed us to continue improving our liquidity figures on the stock market.

The volume of Duro Felguera shares traded rose to 692.9 million euros, showing an increase of 32.4% compared to the previous year.

The number of shares traded was 80.77 30 million, which means an annual capital turnover of 79% of capital.

In 2007 the highest Duro Felguera share markets, Duro Felguera came in at number price was 9.64 euros on the 8th February, 17 for the overall shareholder yield. More and the lowest was 7.31 euros per share than half of these companies, 45 to be on the 10th August.

STOCK MARKET INDICATORS IN THE LAST THREE YEARS

2007 2006 2005 Year-end closing price (Euros) 8.69 7.43 2.75 Net Profit per Share (PPS) (Euros)(*) 0.42 0.33 0.26 PER (Price/PPS) (Times) 20.87 22.29 10.59 Net Cash Flow per Share (CFS) (Euros)(*) 0.53 0.41 0.33 PCF (Price/CFS) (Times) 16.52 18.31 8.23 Accounting value per Share (Euros)(*) 1.39 1.17 1.07 Price/Accounting Value (Times) 6.25 6.34 2.58 Dividend per Share (Euros) (*) 0.19 0.10 0.07 Dividend Yield (%) 2.22 % 3.44% 3.48%

STOCK MARKET INFORMATION Number of Shares (at year close) 102,016,601 102,016,601 14,877,421 Number of Shares after split 102,016,601 102,016,601 89,264,526 Capitalization at year close (Euros) 886,524,263 757,983,345 245,477,447

For comparative purpose between years, historic figures have been adjusted by the 1x6 split in June 2006. (*) Calculated according to number of shares at financial year close. ACTIVITIES OF THE BUSINESS LINES6

All of the group’s susbsidiaries showedpositive results in 2007 ACTIVITIES OF THE BUSINESS LINES

DURO FELGUERA ENERGÍA GENERAL MANAGER: Francisco Martín Morales de Castilla

The Duro Felguera power systems line July the contract for6 the Cas Tresorer II PROJECTS of business increased considerably in 2007; plant was secured and works commenced CORE BUSINESS a year where close to fifteen projects at the beginning of August. This unit will • Execution of Turnkey Projects for were executed at the same time and in come into operation under open cycle Gas-fired Power Generation Facilities which order intake reached an all-time halfway through 2009 and a year later (Open or Combined Cycle) high of 552 million euros, doubling the under combined cycle. • Turnkey Projects for Conventional Power Generation Facilites previous year’s figure. This growth, mainly • Desulphurisation and Denitrification Plants derived from securing turnkey contracts The Castejón II (Navarra) and Puentes at Coal Fired Power Generation Facilities for gas-fired power generation facilities de García Rodríguez (La Coruña) • Biomass plants • Cogeneration plants (open and combined cycle), happened combined cycle projects started the both on the home front in Spain, where commissioning phase in the second half MAIN SCOPES OF WORK the leading position of the company for of the year and provisional acceptance is • Project Management this type of installation was consolidated, scheduled for 2008. Works continue to • Engineering and on the international markets, where schedule on the combined cycle facilities • Supply 32 • Construction a significant expansion of the business of Barranco de Tirajana II (Gran Canaria) • Erection occurred. -operating under open cycle since 2006- • Commissioning and Soto IV (Asturias). Both will come • Operation & Maintenance On the domestic market, Duro Felguera into commercial operation in 2008. QUALITY, ENVIRONMENTAL & Energía finalised works on the Cas Tresorer SAFETY MANAGEMENT I plant in Mallorca, which were carried In 2007, the power systems line also • Certificates: out integrally by the company on a turnkey finalised the overhaul of the third coal- Lloyd´s Register Quality Assurance, EN / BSEN / DIN EN- ISO 9001 / 2000 basis. This facility, that had already been fired unit at the Puentes de García • Applicable to design, engineering, started up under open cycle in 2006, Rodríguez power plant to adapt it to the acquisitions and construction of projects went into commercial operation under use of imported coal, achieving a for turnkey industrial installations in the combined cycle in mid 2007, contributing considerable improvement in schedules industrial and power generation sectors. in a major way to meeting the increasing and efficiency in comparison to the works power demand of the Balearic Islands. In carried out on the previous units. Works commenced on the fourth and last unit in January 2008.

The principal contracts on the domestic market, apart from the already mentioned Cas Tresorer II, were secured midway through the year -Besos V and Puerto de Barcelona combined cycle facilities- both

ACTIVITIES OF THE BUSINESS LINES located in Barcelona and with a nominal power output of 800 MW each.

On the international side of the business, the 2007 financial year stood out for two especially important milestones: consoli- dation of our presence in Argentina and our arrival in Chile. In Argentina works continued on the Manuel Belgrano 800 MW combined cycle power generation facility located in Campana (Buenos Aires) which went into commercial operation in 2008, and a contract was signed for power sector. andenergy multinational’sBrazilian strengthinthe duetothe and isespecially important onthe Energía market Felguera Argentine Aires), reinforces the presence ofDuro Genelba power plantinEzeiza (Buenos power plantonthesitenextto agas-fired opencycle and construct develop engineering, supply equipment securedwithPetrobrasThe contract to (SantaFeprovince).Rosario combined cyclefacilitytobelocatednear 800MW the JosédeSanMartín consolidated itspresence in andsecured Argentina “The power systemsline its fist contract inChile” its fist contract facility (Asturias). plantattheLadapowerdesulphurisation addition, wasawarded for acontract Monfalcone (Italy) arestillongoing. In those atthe Velilla, Compostillaand at the Teruel plantwere completed, and national MHI, therevampingofthreeunits withtheJapanesemulti- consortium projectsin outseveral iscarrying Energía fired power plantswhereDuroFelguera ofcoal- In thefield ofdesulphurisation are expected. the power sectorover thenextfew years where numerous investments todevelop inthearea into themoststable country project inhand, thecompany gainsentry ofSantiago.kilometres north With this Chico regionofthecountry, 800 Copiapó-Tierra Amarilla, intheNorte This isanopencycleplantlocatedin facilitywasequally significant.generation theCardonespower toconstruct contract withasecuredturnkey Chilean market viewpoint,From astrategy landingonthe

DURO FELGUERA 07 ANNUAL REPORT 33 ACTIVITIES OF THE BUSINESS LINES 6

MONTAJES DE MAQUINARIA DE PRECISIÓN, S. A. MOMPRESA MANAGING DIRECTOR: Víctor Alfaro Montañés

In 2007 the following erection works were concluded or commenced: two gas turbines and one steam, along with generators, piping and auxiliary equipment at the As Pontes (800 MW) combined cycle facility; gas and steam turbines and generator at the Castejón II (400 MW) combined cycle facility; two gas turbines and one steam, in each case, at the Cas Tresorer (230 MW) and Barranco de Tirajana II (230 MW) combined cycle facilities, as well as one gas and one steam turbine and generator for the Soto de Ribera IV (400 MW) combined cycle 34 facility. Operations abroad included civil and electrical/mechanical erection works at SERVICES the Chilca II (175 MW) and Kallpa (175 ERECTION AND OVERHAUL OF: In 2007 Montajes de Maquinaria de MW) open cycle plants in Peru. Works Precisión, S.A. (Mompresa) maintained its also commenced on the erection of four • Gas and steam turbines • Generators dominant position on the Spanish market gas turbines with their generators, auxiliary • Auxiliary turbines for the erection, assembly and overhaul equipment and piping at the Manuel • Condensers of turbogenerators, registering a workload Belgrano (800 MW) and San Martín (800 • Rotating equipment in general - The company carries out comprehensive increase of 15% compared to the previous MW) combined cycle plants in Argentina. construction (civil works and electrical/me- year, when it had already achieved similar chanical erection) of open and combined growth figures. Order intakes rose by During 2007, comprehensive works were cycle power generation facilities abroad, via its subsidiaries. 56%, which will mean more activity carried out on the Tierra Amarilla (Chile) QUALITY, ENVIRONMENTAL & throughout 2008. open cycle facility, and erection in SAFETY MANAGEMENT collaboration with SERWESTCA, in With regard to operations, of special note Maracaibo (Venezuela), of two 175 Certificates: • LLOYD´S REGISTER QUALITY is the rise in the number of overhauls MW/each gas turbines for the Temozulia ASSURANCE carried out on gas turbines, equalling combined cycle. Quality: ISO 9001:2000. Environment ISO 14001:2004 and EMAS. those on steam turbines -the company’s traditional speciality-, achieving a total of In conjunction with Felguera Montajes y • AUDITORES DEL NOROESTE 40 overhauls between both types. In Mantenimiento, Mompresa is erecting the Safety at Work Audit Certificate addition, the company was introduced to gas and steam turbines and generator at

ACTIVITIES OF THE BUSINESS LINES OHSAS 18001:1999. the field of high-power combined cycle the Cycofos (400 MW) combined cycle overhauls by the leading OEM’s Mitsubishi facility in France for Alstom. and Siemens. Towards the end of the year, erection On the international front, Mompresa works started on two gas turbines, one extended its presence in France with the steam turbine, generators, and auxiliary overhaul of the steam turbine at Lucy equipment and piping at the 800 MW (ENDESA) for Alstom, whilst at the same Langage combined cycle facility in time executing erections on new projects Plymouth (UK), which is the first significant both in Spain and abroad, expanding its contract for Duro Felguera on the UK field of operations to five new countries: market, and where major investments on the UK, France, Argentina, Chile and power generation facilities are expected Venezuela. in the next few years. MANAGING DIRECTOR: Rodríguez JuanJoséHerrero OPEMASA OPERACIÓN Y MANTENIMIENTO, S. A. Monfalcone (Italy). plantsin desulphurisation Teruel and IV(Asturias);Ribera and atthe and Sotode Rodríguez (LaCoruña) Castejón II(Navarra), PuentesdeGarcía Canaria),(Gran Cas Tresorer (Mallorca), de facilitiesofBarranco generation Tirajana outatthe combinedcyclepower carried were and commissioningcontrolworks Throughout 2007storage, documentation, scale. onaworldwide art Spanish technologythatisstate-of-the- installations,other typesofindustrial using and controlling processesinrefineries saving projectsby improving and The company isable tohandleenergy compared totheprecedingyear. bothinsalesandprofits 97% rise coal-fired facilities. This increasemeanta plantsat facilities anddesulphurisation and morespecifically incombinedcycle executed inthepower area generation number ofprojects due tothelarge considerablyin2007,operations mainly facilities,and industrial increasedits and maintenanceofpower generation specialised inoperation, commissioning Opemasa, ofDuroFelguera asubsidiary dollars. andaglobalvalueof50million 15 years in Argentina, ofapproximately for aperiod combined cyclepower facility generation management oftheManuel Belgrano with Siemensfor integrated contract term Finally, Opemasasignedamajorlong- a notable increaseintheshort-term. Activities for thistypeofplantwillregister company ofHCEnergía.for asubsidiary plant inPuebla de (Toledo)Almoradiel residue)cogeneration biomass (grape facilities, upofthe aswell asthestart powerAboño (Asturias) generation in the Aceca (Castilla-LaMancha)and outatthe watertreatmentplants carried executed in2007,works ofnotearethose andmaintenance Among theoperation at gasturbineoverhauls. works andinstrumentation and electrical documentation services, codingofspares Rodríguez power plant. Italsoprovided atthePuentesdeGarcía the boilers plantandinrevamping desulphurisation atthe works organisation Velilla instorage The company alsoparticipated • • • • • CORE BUSINESS: SAFETY MANAGEMENT QUALITY, ENVIRONMENTAL & OHSAS 18001:1999. Safety at Work Audit Certificate AUDITORES DELNOROESTE Environment: ISO14001:2004. Quality: ISO9001:2000. ASSURANCE LLOYD´S REGISTERQUALITY Certificates: of power saving projects. Study, implementationanddevelopment control Stockyard managementanddocumentation plants ingeneral of power plantsandindustrial generation Commissioning, andmaintenance operation SERVICES

DURO FELGUERA 07 ANNUAL REPORT 35 ACTIVITIES OF THE BUSINESS LINES 6

DURO FELGUERA PLANTAS INDUSTRIALES, S.A. GENERAL MANAGER: Félix García Valdés

In 2007 Duro Felguera Plantas Industriales With reference to the project to carry became the spearhead of the group on out the largest mineral handling port the international markets thanks to the terminal in India, in 2007 the works carried contract with Petrobras for two gas out were mainly civil works, manufacturing handling port terminals in Brazil, meaning and erection of conveyors, transfer towers a foothold gained in one of the largest and machinery for the mineral stockyard emerging markets in the world and, at and the port. the same time, obtains the confidence of one of the biggest multinationals in the On the Asian market, Duro Felguera power sector. The start of works on a Plantas Industriales finalised the Qatar bulk handling port terminal in India, the project to supply a bulk stacker, a stacker- inauguration of the first phase of an iron reclaimer and a ship loader to handle iron ore concentration plant in Venezuela and ore. This last piece of equipment has a having secured contracts to the value of cushioning device to reduce degradation 36 nearly 170 million euros, of which 87% of the product, which is without a doubt corresponds to the international markets, yet another sign of the company’s high were other noteworthy aspects of the technological capacity, as it is one of the financial year. most modern machines of its kind in the world. The company signed two large contracts in Brazil with Petrobras to carry out the As proof of the recognition achieved in design, supply, installation and start-up of the Middle East and Asia, at the beginning two gas handling port terminals in Pecem of 2007 the company was charged with (Fortaleza) and Guanabara Bay (Rio de the supply of a barge offloading system Janeiro). in the Arab Emirates for a steelworks that the company Emirates Steel Industries These projects involve the first gas handling (ESI) is constructing near Abu Dhabi. The facilities in Brazil as well as a technological engineering and manufacturing phase was challenge on a global scale, as they are completed at the end of the year with the first of their kind. only installation pending execution, and it is expected to go into service midway through 2008.

On the international markets, of note also is the successful finalisation of the contract

ACTIVITIES OF THE BUSINESS LINES to install and commission a continuous casting facility at a steelworks in Romania.

Within the port terminal activities of the company, works are finalising on constructing and equipping the coal terminal at the exterior port of El Ferrol. The port has two ship unloaders with 50 Ton capacity buckets as well as a coal handling system comprising of conveyors and a stacker. In addition, the terminal also has environmental protection measures and of note are the water • • • • • • • • • • • • • • • • • • • • INFORMATION TECHNOLOGIES DISTRIBUTIONSYSTEMS PHYSICAL ENVIRONMENT PETROCHEMICAL, GAS AND INFRASTRUCTURES: EQUIPMENT FORLARGECIVIL WORKS SERVCIES FOR: INSTALLATION AND AFTER-SALES DESIGN, DEVELOPMENT, PRODUCTION, MINERAL PROCESSING PLANTS BULK HANDLINGFACILITIES AND OPERATION AND MAINTENANCEOF SUPPLY OF: TURNKEY PLANTENGINEERING& Internet Projects Internet Management systems systems with corporate Own softwareproductsandintegration Transelevators logistics andstorage for automatedphysical distribution, Turnkey installationandsystems Water treatmentplants plants Environment –Incineration plants Acid regeneration terminals Gas handlingport Petrochemical plants Tunnel machines, boring back-up’s andbulk loads general for containers, cranes Overhead andgantry services for port cranes Dockside andgantry cranes overhead andgantry cranes Industrial, andnuclear steelworks processingplants Mineral mining Equipment andinstallationsfor underground andshiploaders unloaders Grab andreclaimers Bulk stackers cement plants, etc. power plants, steelworks, mines, Bulk handlingandstockyards at for solidbulk handling terminals Seaport PROJECTS of low grade ironore.of low grade reserves theuseoflarge permitting atleastby extended another40years Venezuelan tobe Guayana reserves This willallow for thelifespan ofthe andreducesilicacontent.to 68%purity will betreatedtoimprove itsqualityup plantwherethemineral concentration plant, commenced onthe works After commissioningthisphaseofthe controlbuildings.various operations, homogenisationplantsand with stationsfor loadingandunloading has 1.5kmofstockyards, lines 2kmofrail inFebruary.was inaugurated The facility 28 kmfromCiudadPiar(BolivarState) in Venezuela Orinoco, for Ferrominera plantthatisbeingexecuted concentration phaseoftheironore The first facility.generation coal destinedfor the As Pontes power capable ofhandlingfive milliontonsof the summerof2008whenitwillbe system. in The facilitywillbeoperational treatment plantandthestockpilespraying markets accountedfor markets “In 2007, international 87% oftheoverall executed. to receive, was storeandhandlegrain capacity systemdesignedby thecompany a60,000-ton of ElMusel(Asturias) with sodiumsulphate, whilstattheport toreceive,terminal storeandloadships installeda PlantasIndustriales Felguera ofZierbana(Vizcaya),At theport Duro production. handling processesneededincement stops dustemissionsfromthesolidfuel madeofgalvanised steel,structure which is acovered andclosedtri-dimensional andwhichisnovelIndustriales inthatit Plantas by DuroFelguera constructed 22,700 tons; afacilitydesignedand circular coke stockyard withacapacityof ofSpain. a in theNorth InCantabria Three bulk handlingfacilitieswere finalised iron ore. ore toobtain8milliontonsofhighgrade in 2010andwilltreat12milliontonsof plantwillbeoperative The concentration order intake”

DURO FELGUERA 07 ANNUAL REPORT 37 ACTIVITIES OF THE BUSINESS LINES 6

FELGUERA MONTAJES Y MANTENIMIENTO, S. A. MANAGING DIRECTOR: Eduardo Martínez San Miguel

Felguera Montajes y Mantenimiento steel structures for the 230 MW Cas increased its commercial activities in 2007, Tresorer combined cycle facility in reinforcing the upward trend of the Mallorca. Works were also carried out previous years which caused a significant on the 400 MW Castejón II (Navarra) rise in new contracts and business figures. combined cycle power plant which The company which is specialised in included mechanical erection of a HRSG, mechanical and electrical erection, as well piping, water/steam cycle equipment and as maintenance of industrial installations BOP equipment. with high levels of demand in the power and industrial sectors, increased its The same tasks were carried out on the presence on the international markets 400 MW Soto IV combined cycle facility and in the field of desulphurisation of flue (Asturias) whilst at the 230MW Barranco gases at coal-fired power plants. de Tirajana II (Gran Canaria), the company started mechanical erection of two NEM 38 Order intake for the year rose by 49%, boilers, as well as erection of piping, whilst turnover grew by 59%, thereby water/steam cycle equipment and BOP contributing to the Duro Felguera strategic equipment. Finally, at the Barranco de objective of promoting the industrial Tirajana I power plant, Felguera Montajes services business area where FMM plays y Mantenimiento carried out engineering, an important role within the group. supply and erection works on the building SERVICES for the two HRSG’s. ENGINEERING, MANAGEMENT AND The company’s operations in the power DEVELOPMENT OF ERECTION sector were centred on the erection of One of the milestones of the year was PROJECTS FOR: combined cycle power generation facilities the company’s entry into the French • Power generation plants and overhauls of other power generation market thanks to the contract signed with • Chemical and petrochemical industries • Metal and steel industries facilities. Alstom Power for the supply, pre- • Cement, paper, sugar, etc. plants fabrication and erection of the HP piping, • Car industry and naval sector, etc. At the beginning of 2007 works concluded mechanical erection of a HRSG and MECHANICAL AND ELECTRICAL on the mechanical erection of two heat mechanical erection of the gas and steam ERECTION FOR LARGE INDUSTRIAL recovery steam generators (HRSG), turbines at the 480 MW Cycofos WORKS piping, closed circuit cycle equipment and combined cycle power plant in Fos Sur REFURBISHMENT, REVAMPING AND OVERHAUL OF INDUSTRIAL FACILITES

MAINTENANCE • Maintenance organisation and control of ACTIVITIES OF THE BUSINESS LINES spares • Kick-off and supervision • Execution of preventive, predictive and corrective maintenance • Specialist maintenance works • Major overhauls during outages/stoppages RCM

QUALITY, ENVIRONMENTAL & SAFETY MANAGEMENT Certificates: • AENOR: ISO 9001:2000

• AUDITORES DEL NOROESTE: Safety at Work Audit Certificate OHSAS 18001:1900 stockyards atthe Arcelor Mittalfactory finalised onconditioningthe works Within thefield ofthesteelindustry, belonging toRepsol. facility Castellón andatthePuertollano in FCC outagesattheBPOilrefinery outonthe were carried works various inCádiz, refinery unit attheGibraltar and piping) atthenewmetaxylenerecovery mechanical erection(equipmentand attheendof2006toprovide had started concluded ontheprojectfor Cepsa, which In thepetrochemicalsector, works erection ofthelimestoneplant. systems; ZLDmechanicalerectionand andcontroloftheDexos instrumentation equipment; erection; electrical piping A1); mechanicalerectionof CC02, (welded CC04; andCA02 CA01 and erectionofsystemsBA01, CC01, erection of AA60 piping; prefabrication pre-fabrication, coatingand rubber thesupply,in 2007and2008comprises the scopeofprojecttobeexecuted of AA60 piping, whilstattheItalianfacility coating, rubber paintingandtransport onthesupply, works started manufacture, power plant. At Compostilla, thecompany units IandIIoftheMonfalcone(Italy) Compostilla (León)power plantandon out on unitsIVand being carried V atthe plants area,intheworks FMMparticipated ofcoal-fired powerIn thedesulphurisation in2008. started was securedandworks addition, tooverhaul thecontract UnitI 2005 (UnitIV)and2006III). In Coruña), asithaddonepreviously in coal atthe As Pontes power plant(La equipmenttouseimported and auxiliary theUnitIIboilers totransform the works in In 2007thecompany alsotookpart 2008. mid 2007andwillconcludethroughout Mer (Marseille). Works commencedin services segmentofthegroup” services objective of encouraging the objective ofencouraging “The growth intheerection business contributed tothe business contributed Project. for the and paintingworks ADI-1000 at theMuskizrefinery, mechanicalerection and Merox LPG4unit; andfor Repsol YPF, mechanical erectionoftheSulphurBlock 2009 for CepsaattheLaRábidarefinery: the petrochemicalsectorin2008and tobeexecuted in note arethecontracts backlogamongwhichofspecial current favourable, amountsof given thelarge Expectations for 2008arehighly Valencia. at theCofrentesnuclear power facilityin facilities,generation bothin Asturias, and andLadapowerSoto deRibera outagesatthe execution ofprogrammed Iberdrola and Arcelor, aswell asthe outfor Elcogas(Puertollano), carried area ofbusiness, ofnotearetheworks Finally, maintenance withintheindustrial at the Avilés factory. revampingofgasometerI during works company toexecute themechanical was signedwiththemultinational steel addition, attheendofyear acontract and erectionoftheP-212conveyor. In the disassembly, engineering, construction Bwashandledin furnace April, aswell as outageofblast facility theintermediate of2006, quarter andinthesame fourth Gijón, whichhadbeenawarded inthe

DURO FELGUERA 07 ANNUAL REPORT 39 ACTIVITIES OF THE BUSINESS LINES 6

FELGUERA REVESTIMIENTOS, S. A. FERESA MANAGING DIRECTOR: Pedro Carcedo Herrero

Felguera Revestimientos (Feresa), cycle and BOP equipment and piping at specialised in supplying and installing heat, the Soto de Ribera IV (Asturias) and cryogenic and acoustic linings and Barranco de Tirjana II (Gran Canaria) insulation in the energy (coal-fired power combined cycle power generation facilities. plants, cogeneration, combined cycle, etc.), gas, chemical/petrochemical, steel, car, Additionally within the power sector, of cement, sugar and environmental sectors, note are the supply and erection of heat maintained the tendency for growth in linings for the desulphurisation plant of 2007 that it had already registered in units IV and V at the Compostilla power 2006, achieving a rise in sales of 7.6%. plant in Leon, as well as lining works and supply for the overhaul of the third unit Expectations for 2008 are favourable on of the As Pontes power plant. its main markets, with projects standing out in the petrochemical sector such as In the petrochemical sector the company 40 the new hydrogen plant and vacuum unit executed various projects among which at the Gibraltar Refinery for CEPSA in the most significant is the one carried out San Roque (Cádiz) as well as the award at the Gibraltar Refinery in Cádiz for of two contracts to execute -at the Port Cepsa. Works on this facility included the of El Musel (Gijón)- the lining and erection lining of the PDTAR intake piping, the works for piping to be installed at the supply and erection of heat insulation for natural gas terminals of Guanabara Bay piping and equipment at the new and Pecem (Brazil) for the multinational metaxylene recovery unit, heat lining of Petrobras. the chiller and its piping, modification of the Sulphur III plant and heat lining of Within the power systems field, the entry equipment and piping of the Amina SERVICES into international markets is especially Sulphur plant VI. CONVENTIONAL LINING: significant with a contract to supply and • Insulation: mineral / ceramic, bio-soluble, erect the lining of a generator and the In the gas sector, works commenced on silicate calcium, foam glass, expanded turbines (gas and steam) at the Cycofos the project for cryogenic lining of a LNG perlite, poliisocianurate, polyurethane foam, combined cycle facility in Marseille tank with a 150,000 m3 capacity in etc. • Protective lining: aluminium, stainless, (France). Feresa also has a contract at the Cartagena. galvanised and aluminised steel, aluzinc, desulphurisation works to be carried out mastics, painting, etc. at the Velilla power plant and at the Finally, in the maintenance and outages BLASTED INSULATION overhaul of the fourth and last unit of the area, in 2007 the company executed As Pontes power plant in La Corunna. revamping and substitution works on the REMOVABLE LININGS

ACTIVITIES OF THE BUSINESS LINES (PADDING) refractory and heat linings during the Also within the power sector, external programmed outage of unit III at the Soto • In general, for equipment with difficult and internal lining and insulation works de Ribera power plant and insulation dimensions and shapes: steam turbines, for the As Pontes (La Coruña) and Cas renewal of unit II at the Lada power plant, heat exchangers,dilation compensators, diesel motor collectors and exhausts, etc. Tresorer (Mallorca) combined cycle both of which are in Asturias. facilities were concluded. Heat insulation QUALITY, ENVIRONMENTAL & for equipment and piping of the HRSG, In addition, over the course of the year, SAFETY MANAGEMENT steam/water cycle and BOP equipment various customers were supplied with Certificates: were also carried out at the Castejón II concrete, cement, aluminium and other • AENOR: ISO 9001:2000 combined cycle power plant in Navarre. refractory materials. Feresa has several Throughout the year works commenced maintenance contracts at industrial facilities • AUDITORES DEL NOROESTE: Safety at Work Audit Certificate to supply and erect heat linings and belonging to major national operators in OHSAS 18001:1900 insulation for the boilers, steam/water the power and petrochemical sectors. FELGUERA CALDERERÍA PESADA, S. A. SOLE ADMINISTRATOR: Florentino Fernández del Valle

execution and delivery to the customer signifying a complex logistical operation to transport them by sea, FCP confirms its world-leading position in the field of large equipment for the petrochemical industry.

Other projects finalised successfully in 2007 were: a coke chamber furnace for BP in Castellón; FCC reactors for Big West in the USA; Powerformer reactors for Exxon Mobil in the UK, as well as various hydrodesulphurisation reactors for Repsol YPF for its refineries in La Corunna and Cartagena. 41

The main contracts secured during the Felguera Calderería Pesada (FCP), the year reach a value of nearly 29 million group’s subsidiary specialised in manu- euros and are for a HDS reactor for facturing capital goods equipment for the CEPSA; coke drums for Valero (Texas); a petrochemical industry and more HDS reactor for PETRONOR, and crude specifically, equipment that is thick walled, and vacuum distillers for Sinclair extra-large or manufactured using (Oklahoma). uncommon materials, closed the year with an order intake figure of 32.5 million New orders are related to products which euros, in line with estimates, and situating are in line with what FCP has been profits before tax above 6 million euros, manufacturing over the last few years, a 74% increase in relation to the previous and this has led the company to invest in PRODUCTS year. adapting its installations to the new EQUIPMENT FOR THE CHEMICAL products. AND PETROCHEMICAL INDUSTRIES Profit growth confirms the strategy • Thick-wall reactors established a few years ago based on During the year various new systems • Coke chamber furnaces specialising in high-grade products that were started-up at the workshops: an • FCC Units require state-of-the-art technology. This automatic welding system for nozzles • Large columns swing has been based on constant quality using a technique devised by the company • High pressure separators improvement and on an ongoing effort itself; an automatic grinding machine, and QUALITY, ENVIRONMENTAL & in the field of research and development new narrow-gap welding systems. These SAFETY MANAGEMENT that has allowed new technologies to be will increase productivity and consequently, Stamps incorporated in processes and products. make FCP more competitive. • ASME: U, U2 y S National Board: R (for alterations and Among the contracts executed during With reference to R&D, in 2007 FCP repairs the year, the most noteworthy has been worked on developing traditional lines on ASME equipment in service) S.Q.L. (equipment destined for China) the final delivery of two ethylene rectifiers focussed on thick-walled and extra large bound for Saudi Arabia, for the engineering equipment, and a new line of research Certificates firm Japan Gasoline Complex (JGC). With was started that will mean a significant • ISO 9000/2000 • ISO 14001 / 2000 a weight of 2,200 tons each, they are the rise in FCP’s competitiveness, as is the • TUV: AD-Merkblatt HP0 / TRD 201 / largest of their kind ever built in one piece application of photogrammetry in process DIN-EN 792-2 in any workshop. After successful control. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ACTIVITIES OF THE BUSINESS LINES 6

FELGUERA MELT, S. A. MANAGING DIRECTOR: Carlos Ruiz Cornejo

Felguera Melt maintained high levels of Among the designs put forward for the production and commercial operations new lines of the Madrid underground in 2007, and registered increased turnover, system, as well as for the extensions to improving on the financial results of the already existing lines, are the mobile point previous years. crossings for both conventional turnouts and junctions. The technology for this Production was at record levels and it material is Felguera Melt’s own and increased its quality ratios both in the considerably improves rail track conditions foundry line and in the rail line, thanks in thereby affording greater comfort for the great measure to the investments made passenger. in modernising processes and new equipment. Throughout the year various contracts for the rail sector were secured among Production in the foundry line –specialised which are: on the domestic market, the 42 in manufacturing iron and steel parts supply of turnouts for Sacyr destined for mainly for the wind power sector and, to the high-speed rail sections of Alcazar de a lesser extent, the rail sector- reached San Juan (Castilla-La Mancha) and all-time maximums and came close to Castellbisbal (Cataluña); and on the PRODUCTS 9,000 tons. The investments made in a international market, the contract signed MANUFACTURE OF IRON AND sand mixing machine, modernising the with Ergose to supply 36 turnouts for the STEEL FOUNDRY PARTS sand recovery system, a new core line railway system in Greece, as well as the • Grey iron casting- maximum weight per and in purchasing other equipment made contract for the Metro de Santo Domingo piece 40 t. this growth possible and also significantly (Dominican Republic) with the • Casting of iron modules - maximum weight improved the final quality of the product. construction companies CIM and TSO. per piece 30 t. • Carbon and manganese steel casting - maximum weight per piece 3.5 t. Throughout the year various 10 and 15- In the R&D area, Felguera Melt researched MANUFACTURE OF RAIL TRACK ton parts were supplied to the world’s further into improving turnouts, double MATERIAL main wind power operators, among which crossings (scissors) and diamond crossings • Moulded manganese steel crossings are: General Electric, Gamesa Eólica, in collaboration with various research • Mobile point crossings Acciona Wind Power, Sofesa and WWT. centres. • Conventional switches • Switches for tramlines As far as production for the rail sector is Among other achievements, the most • High speed rail switches • Turnouts preassembled on wood or concerned, operations were centred on notable is the design for ADIF of a double concrete ties. crossings for Administrador de sleeper crossing for international gauges • Crossovers Infraestructuras Ferroviarias (ADIF) and using concrete sleepers and low • Double crossovers (scissors)

ACTIVITIES OF THE BUSINESS LINES • Sleepers (ties) for the Paris Metro, for whom there is a asymmetrical profiles, which is • Switch expansion joints contract to supply 200 units. unprecedented on the Spanish railway • Insulated glued joints network. In addition, also worth QUALITY, ENVIRONMENTAL & On the commercial front, most mentioning in this field is the development SAFETY MANAGEMENT noteworthy is the contract signed with of a novel system to replace underground Certificates Gamesa to supply wind-power generator rail track material on lines in service, as • AENOR: ISO 9001:2000 equipment over a period of three years, well as the patent awarded for a device • LLOYD’S REGISTER QUALITY ASSURANCE: ISO 14001 meaning an annual production of nearly to reduce stress in crossing manoeuvres. • RATP: UV21B – Crossings - 3,700 tons. Half set of switches The rail line finalised the contract with • AUDITORES DEL NOROESTE: OHSAS 18001 Metro Madrid to supply a wide range of railway track devices. FELGUERA RAIL, S. A. MANAGING DIRECTOR: Carlos Ruiz Cornejo

2007 was especially significant for Felguera It is a totally new product for the market Rail , as for the first time since all its and is currently undergoing an official facilities went into full operation in Mieres approval process. ( Asturias ), it began to work for customers other than Duro Felguera. The range of products offered by Felguera Rail increased with the start of manu- The company had worked exclusively for facturing on mixed rail sections using Felguera Melt since it started up in 2003. different rail profiles. More specifically, the company considerably increased the number of welds carried Felguera Rail, set up in 2003 to stimulate out in 2007, thereby favouring positive the manufacture of high speed rail track results. material and devices, thereby com- plementing the works carried out in this In 2007 erection was also completed of field by Felguera Melt, finalised conditioning a turnout prototype for high speed rail works on the workshops acquired in the 43 lines of up to 350 km/h, whose design Fábrica de Mieres Industrial Estate and manufacture is the result of intense (Asturias)in 2006, where it has more than research and development carried out 54,000 metres of surface area. by the company over the last few years. A joint quality-environmental management The above mentioned prototype was system was set up in 2007 which is successfully presented to a committee of expected to be certified by an external Administrador de Infraestructuras organisation in 2008. Ferroviarias (ADIF) in the month of April.

PRODUCTS MECHANIZATION OF CROSSINGS JOINT BARRING FOR FROGS, PROFILES 54E1 AND 50E1: ADIF, METRO MADRID, RATP (FRANCE)

MECHANIZATION, BUTT & FLASH WELDING OF FROGS, PROFILES 54E1, 60E1 AND 50 E1: ADIF, METRO MADRID, RATP (FRANCE), ERGOSE (GREECE)

MOBILE POINTS CROSSINGS

MECHANIZATION OF SWITCH RAILS AND STOCK RAILS, LOW ASYMETRIC PROFILES 54E1A1, 60E1A1 AND VIGNOLE PERFILES 54E1 Y 60E1

MIXED RAIL SECTIONS 54E1 / 60E1 AND RN45 / 54E1

PREASSEMBLED RAIL TRACK DEVICES ON CONCRETE SLABS, AND CONCRETE SLEEPERS: CONVENTIONAL UNDERGROUND RAIL SYSTEMS, HIGH SPEED RAIL 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ACTIVITIES OF THE BUSINESS LINES 6

TÉCNICAS DE ENTIBACIÓN, S. A. TEDESA MANAGING DIRECTOR: Carlos Ruiz Cornejo

Técnicas de Entibación, S. A. (Tedesa) Cabriel tunnel (for Acciona, S. A.), on the closed 2007 at an all-time high in terms Madrid-Valencia high-speed rail line, where of production and order intake. Tedesa supplied more than 3,000 tons of supporting equipment for tunnels. The large volumes of operations in the public works sector, especially for rail and On the international front, in 2007 the road tunnels, as well as the rise in exports, company exported to more than ten permitted a significant increase of profits countries, but volumes destined for for the Duro Felguera subsidiary Germany and various Latin American specialised in tunnel equipment. countries were most noteworthy.

Acquisitions in new machinery and Sales abroad increased by 28% compared upgrading of production processes at the to the previous year and came to 10% workshops located in Llanera (Asturias) of the year’s turnover. 44 aided in achieving the improvement mentioned in production capacity. In addition, 2007 stood out for achieving a record in production and order intake Works carried out during the year for within the area of communication towers the underground mining sector maintained for mobile phone networks. levels in line with previous years, whilst public works operations, both for tunnel Major contracts were also secured to supports and frameworks, grew supply supports for solar power panels, considerably. which is new on Tedesa’s product list and has highly favourable expectations for the One of the most significant projects in future given the rise in investments in this PRODUCTS 2007 was executed in the Villargordo del type of power generation facility. MINING: • Steel arches in TH, HEB, IPN sections • Hydraulic and friction props • Link bars • Lining sheets • Grating TUNNELS: • Steel arches in TH, HEB, IPN sections • Lattice girders ACTIVITIES OF THE BUSINESS LINES • Formwork • Bernold-type sheet • Resin anchor bolts • TBM back-ups

ELECTRICITY PYLONS

MOBILE PHONE ANTENNAS

STEEL STRUCTURES

QUALITY, ENVIRONMENT & SAFETY MANAGEMENT

Certificates • AENOR: ISO 9001:2000 MANAGING DIRECTOR: Pérez Ana IsabelBernardo MECÁNICAS, S. A. FELGUERA CONSTRUCCIONES • • • • • • • • • • • • • • • • • • • PECAL/AQAP 120(being renewed) OHSAS 18001:1999 UNE-EN ISO9001:2000 Certificates: ASME: U, U2, SandNB Stamps: (TBM, Back-ups) Digging equipment Chassis for locomotives INFRASTRUCTURES Skids andwheelsfor buckets platforms andgyratory Gantries BULK HANDLING for oncologytreatment Proton beampositioningequipment SECTOR EQUIPMENT FOR THE MEDICAL tie-up. Counterweights for tanker-oil platform conduits onoilplatforms for cabling towers andfluid Derrick (OFF-SHORE) PETROCHEMICAL Gates &valves Turbines &generators HYDRAULIC POWER Contenedores deresiduos NUCLEAR POWER Fans wheels Grinding Mill casings HRSG THERMAL POWER Wind power components generator WIND POWER SAFETY MANAGEMENT QUALITY, ENVIRONMENT & PRODUCTS mechanical testing thattheyundergo. aswell and asthehydraulic tolerances temperatures, mechanisation strict andhigh increase resistancetocorrosion are concerned, usingnickel alloys to complexity inasfarreloadingprcedures These projectsstandoutfor their them. compensates tidemovements between of processingproduction,charge and distributors, flow lines), totheshipin well, areas(extraction stationary power cables, aswell asfluidsfromthe This equipmentchannelscontroland terweight for theBohaiBay (China). equippedwithcoun- and aderrick Sea platforms: for theNorth aderrick off-shore projectswere developed for oil In thepetrochemicalsectortwo major for nuclear waste.containers tomechanize large in Langreo(Asturias) thatthecompany ownsthe workshops outin carried isthework importance In thepower systemsfield, ofequal systems lineofDuroFelguera. cycle power plantsmainly for thepower casings andotherelementsfor combined fans,on manufacturing wheels, grinding Throughout theyear, continued works cast hubsandnacelles. andasaspecialistin mechanising stators) (rotors,for thewindpower industry asmanufacturer ofcomponents markets position onthenationalandinternational In 2007thecompany consolidatedits sector. andinfrastructure the rail equipment, stockyards and bulk material petrochemical (off-shore), medical Its corebusiness linesare: power systems, ingeneral. goods equipmentfor industry manufactures mechanicalandcapital Mecánicas(FCM) Construcciones Felguera projects. developments inhighly technological the field ofresearchcontinuing previous congressesandsessionsin international Throughout 2007,in FCMtookpart in Spain. out projectstobecarried infrastructure TBM’s were offered for different locomotive chassiscomponentsandtwo continued on manufacturing TALGO PlantasIndustriales. Inaddition,subsidiary for theDuroFelguera constructed stockpileswereat bulk mineral and bucket skidsandwheels for reclaimers platforms,In 2007, cranes, gyratory gantry from thecyclotrontopatient. of thepathfollowed by theprotonbeam drastically. isthemobilesection The gantry vital organs, assideeffects arereduced cancerous tissueisintheproximity of efficiency, especially incaseswhere greater oncology hasdemonstrated treatment oftumours. in Protontherapy for the tomanufacture gantries years spanningseveral outonacontract carried centres. To bemorespecific, were works equipmentfor medical sector oflarge madeintotheconstruction incursion In addition, 2007FCMassuredthe during

DURO FELGUERA 07 ANNUAL REPORT 45 ACTIVITIES OF THE BUSINESS LINES 6

FELGUERA - IHI, S. A. CHAIRMAN: Antonio Martínez Acebal

the company’s offices in Las Rozas and which has been congratulated by our customers for quality and for completing works ahead of schedules.

In this year and the next, great investments will have to be made by the large oil companies to adapt their facilities in Spain to new environmental standards, mainly in the refining stage which in certain refineries will require expanding storage capacities for certain products. In this field, CEPSA, one of the largest oil companies in the country has awarded 46 SERVICES 2007 has been a record-breaking year in the majority of its investments in storage OPERATION OF STORAGE PLANTS order intake for Felguera-IHI,S.A., for the La Rábida refinery in Huelva to BELONGING TO FELGUERA-IHI exceeding the 100 million-euro figure for Felguera-IHI,S.A., which has had the largest the first time since it was set up in the investments made in storage this year. TURNKEY SUPPLY OF STORAGE PLANTS seventies. This confirms the management model followed in the company, which Works have continued successfully on DESIGN AND CONSTRUCTION OF has totally transformed it in the last few previously contracted works, among which STORAGE TANKS years, by attaining the current results since the 100,000m3 tank for BP Oil for the OVERHAULS ON FACILITIES the company had started from a very Castellón refinery is of special note. weak base and lacked diversity of opera- ENGINEERING AND CONSTRUCTION tions in the middle of last decade. The storage plants line of the business OF OFFSITES, COGENERATION PLANTS AND PETROL STATIONS has developed works on the CORES One of the activities started in the last plant in Cartagena and for Petróleos QUALITY, ENVIRONMENT & few years and that has high technological Asturianos in Gijón. SAFETY MANAGEMENT demands is the liquefied natural gas (LNG) Certificates storage business. This has been the most A large majority of storage tanks at various • AENOR: ISO 9001:2000 remarkable sign of Felguera-IHI’s recent Spanish refineries have outlived their success as it has cornered a 50% share lifespan and revamping or repairs have of the market which up until only a few to be carried out, which is an ever years ago was only within the reach of increasing business for our company. international companies but these have

ACTIVITIES OF THE BUSINESS LINES gradually abandoned the Spanish market thanks in great measure to Felguera-IHI’s competitiveness and excellent work.

During the year, operations continued on works contracted previously for the ENAGAS plant at Cartagena, and which is expected to finalise in 2008.

To carry out the LNG storage projects, there is an outstanding multidisciplinary team made up of specialists of various nationalities who carry out this work at MANAGER: Emilio Viesca Castaño MEI MONTAJES ELÉCTRICOSINDUSTRIALES, S. L. • AT THERMAL POWER PLANTS FOR DESULPHURISATION PLANTS SUPPLY ERECTION AND ELECTRICAL STORAGE COMPLEXES FOR LOGISTICSOF AUTOMATED ERECTION MECHANICAL EQUIPMENT SUPPLY, ELECTRICAL AND AT MINERALSTOCKYARDS ERECTION ELECTRICAL ENGINEERING, SUPPLY AND AT COMBINEDCYCLEPOWER SUPPLY ERECTION AND ELECTRICAL AENOR: ISO9001:2000 Certificates SAFETY MANAGEMENT QUALITY, ENVIRONMENT & SERVICES at the El Musel port (Gijón)for Petróleos at theElMuselport plant erectionofthefuelstorage electrical outsupply and The company carried ironoreisimproved.low grade where associated totheconcentrator equipment for electrical engineering ofthedetailed belts andagreatpart stackers, grabber, amineral theconveyor erectionoftwosupply andelectrical company developed detailedengineering, executingis currently in Venezuela, the plantthatDuroFelguera concentration Over thelengthofyear, attheiron onitspayroll. has61workers (Asturias) erection building) areinLaFelguera MEI, whoseinstallations(warehouseand erection. andmechanical andelectrical engineering area andmorespecifically inelectrical customers, project mainly intheturnkey toits thatthegroupoffers of services tocomplementtherange Duro Felguera In September2007itwasacquiredby facilities.power andindustrial generation andmechanicalerectionat electrical set upin1968andisspecialised (MEI)was Industriales Montajes Eléctricos plant inMuskiz(Vizcaya). of thecoke plantattheRepsol-Petronor erectionrelatedtotheextension electrical and detailedengineering, supply and Velilla power plant inPalencia; and, basic atthe works for thedesulphurisation andcontrol ofequipment instrumentation the company are: erection, electrical securedby Among thenewcontracts installations. maintenanceonvarious and corrective outrelatedtopreventive were carried Francia, works andfor HUNOSAvarious for new skidtoloadbatteries Arcelor- erection ofassociatedequipmentona For IMASA, pre- supply andelectrical of DuroFelguera. sincebecomingapart which hasstarted facility (Asturias), anewlineofoperation IV combinedcyclepower generation outattheSoto erectioncarried electrical In thepower sector, ofnotewasthe that isbeinginstalled. for thenewcoalstockyard two reclaimers commenced onmechanicalerectionof works (LaCoruña) inElFerrol port Asturianos, whilstatthenewexterior

DURO FELGUERA 07 ANNUAL REPORT 47 ACTIVITIES OF THE BUSINESS LINES 6

DURO FELGUERA AROUND THE WORLD

48

EUROPE Italy France UK Spain

AMERICA USA The company has ACTIVITIES OF THE BUSINESS LINES Mexico increased its Venezuela international Peru Brazil scope Chile and is present with Argentina ongoing projects in a ASIA India United Arab Emirates dozen countries Qatar Japan CORPORATE RESPONSIBILITY7

A company committed to its professionals, customersand its social surroundings; a responsiblecompany CORPORATE RESPONSIBILITY

The growth in employment, improvements The Human Resources7 Department, made in labour safety, development of a fundamental to RSC in Duro Felguera, more intense training programme, underwent a major transformation in maintaining active policies in quality, organisation and strategy, becoming We understand research and development, as well as another element of the company’s responsibility towards increasing transparency towards the management and bringing its work closer our social surroundings shareholders and the market in general to the various subsidiaries of the group. as a factor that improves and encouraging internal communications Fernando Fano Fernández was appointed are just some of the aspects that most manager of Human Resources, and took our businessand the stand out in 2007 in Duro Felguera’s on the responsibility of leading the environment efforts made in the field of what today is department. we work in known as Corporate Responsibility (RSC using the Spanish initials). From the Communication Department, and in total collaboration with the 50 Computer Systems Department, the corporate intranet was set up as a work tool and a communication channel for the workers of the company.

On the training front, most noteworthy was the recognition made by the government of the Principality of Asturias of the Centre for Specialisation in Advanced Techniques (Centro de Especialización en Técnicas Avanzadas (CETA-DF)) which was awarded with a Good Practices in Human Resources Prize for the Master in Industrial Project Management.

Works commenced on the new en- gineering, quality and R&D building in Gijón (Asturias), which will be opened In Duro Felguera we understand RSC as towards the end of 2008, and is another a factor that must be present in all our firm step taken by Duro Felguera in operations in order to improve our supporting research and continuous business and the environment we work improvement policies, understanding them

CORPORATE RESPONSIBILITY in. as being the core to develop operations in the following years. Over the year, the company maintained its commitment to the social and labour In 2007 the company ratified its surroundings where it operates, colla- commitment to human rights in all its borating in various initiatives led by undertakings around the world by organisations, government bodies and remaining a member of the Spanish associations, and we maintained a fluid Association of the World Compact dialogue with the key figures of the (Asociación Española del Pacto Mundial economic and social areas where the (ASEPAN)), the national organisation that company is based. watches over to assure compliance with Average workforce 1000 1500 2000 2500 500 0 DISTRIBUTION OF WORKFORCE EVOLUTION OF WORKFORCE 4.6% 1,994 2004 Others Manufacturing Specialised Services Integrated ManagementofLargeProjects 28.3% 27 BY SEGMENTS .2% 1,945 2005 1,951 2006 39.9% 2,113 2007 professionals More andbetter workforce, whichmeansthatinthelast 40%oftheaverage make upnearly Technical personnel andadministrative increasedby 162.workforce annual average oftheDuroFelguera previous year. Inabsolutefigures, the of8.3%withregardtothe which isarise cameto2,113employees,workforce employment. The average accumulated was alreadyreflectedinevolution of and anobjective thatthroughouttheyear isanecessity highly qualified personnel Given thesituation, of theincorporation executed simultaneously isever greater. that thenumber ofprojectsbeing figure ever reachedby thecompany so 2007 closedwiththehighestorderintake significant increaseofnew orderintakes. is specialised, hasgonehandinwith wherethe company scale inthesectors positive climateofinvestment onaglobal management oftheseprojectsandby a segment, favoured by thecompany’s good power projects in thelarge andindustrial The growth inDuroFelguera’s business Compact. thatinspiredtheUNGlobal the principles personnel in parallel toturning inparallel personnel number ofhighly qualified “We have increasedthe our business around” has alreadylowered to41, which isa The average ageofthegroup’s workforce old. the company areunder35years in more thanhalfofthe500graduates rejuvenationa considerable and assuch, personnel, hasundergone theworkforce qualified the company toincorporate outby carried made inthelastfew years effort training projects andtheenormous growth inlarge tooperations Parallel workers. thirty nearly which attheendofyear affected ones intopermanent contracts temporary 2007 aplanwasputintoactiontoconvert employees,of permanent inSeptember the objective ofincreasingthenumber stability toagreatextent. However, with whichlimitemployment three years- executes -betweenFelguera two and oftheprojectsthatDuro duration and despitethecharacteristics few years that thecompany willincreaseinthenext above the37%mark. Itisapercentage stayed employment rate The permanent more technicalwork. outever highly qualified stafftocarry explained by thegrowing demandfor by morethantwo points, andwhichis professionals inthecompany increased theweighttwo ofthisgroup years

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DISTRIBUTION OF THE WORKFORCE notable advance in this sense, given that countries were present. The objective was BY PROFESSIONAL GROUPS four years ago it was practically at 42.5. to inform on the work opportunities that Nearly 20% of the workers at Duro these companies have to offer abroad, Felguera are less than 30 years old whilst mainly in the EU countries. As a com- 54.7% are under 40; the weight of this plement to this fair and with the objective % last age group increased by six points in of attracting specialised personnel, the 36 the last four years. company also participated in the Workers employment fair that various Spanish Technical staff Despite that fact that the company Chamber of Commerce offices organised Administration operates in areas where the presence of in Warsaw (Poland). 60% staff women is still very scarce, female employment in Duro Felguera increased As is customary, at the end of the year 4% by 62.8% in the last four years. In 2007, the long service awards were presented it grew by 40.7% in relation to the previous to workers from various subsidiaries who 52 year so that at the end of the year the were celebrating 25 or 35 years of service nearly 200 women who work in the at Duro Felguera. On this occasion, 21 group represent 9.3% of all the company’s employees received either the gold or personnel, a figure that increases to over silver insignia, according to the length of 23.4% for technical and administrative service in the company. The number of staff where the majority of female employment is concentrated in the Moving ahead with safety female company. employees Health and safety at work are a constant With the objective of informing on Duro concern for Duro Felguera and is an has increased Felguera among those looking for element that is taken into consideration in the last employment and who fit into the profile when strategy planning take place at its by62% that the company currently requires, in various subsidiaries, which are occupied fouryears 2007 Duro Felguera took part in the with hugely diverse operations and aspects second edition of the European of business. Despite the diversity of sectors Employment Fair that took place in where the group’s companies operate, Oviedo (Asturias) where several Spanish Duro Felguera set up a Health and Safety companies and experts from other EU Management System in 2004 which is applied in all the business units and coordinated by the corresponding Service in the Human Resources Department.

The group defined a health and safety management model in accordance with CORPORATE RESPONSIBILITY the OHSAS 18001 standard, specific to the needs of each company so that it would be easier to set up and develop and also to integrate with the standards that were already being used.

The model uses a cycle of continuous improvement: health and safety policy, planning, set up and operation, review and corrective measures and lastly, a 13.0 10.0 10.5 11.0 11.5 12.0 12.5 10 15 20 25 30 35 40 45 9.0 9.5 0 5 EVOLUTION OF AVERAGE AGE 2005 42.46 2004 ACCIDENT INDEXRATE 12.65 41.33 2005 2006 10.75 41.79 2006 40.99 2007 2007 9.17 Mantenimiento (FMM)andFelguera Montajes y Felguera The subsidiaries of35.8%.annual rise procedures,training whichisaninter- as much 4,697 as lastyear andorganised than 10,000technicalactivities, four times outmore carried The Prevention Service relation to2005. to thepreviousyear’s figure, and22%in 10%compared were reducedby nearly processesthatcommencedin2007 work the lasttwo years. Inaddition, return-to- fell by 9.6%relative to2006, and22%in absencefromwork accidents requiring last year’s 10.75whilstthenumber of wasat9.17comparedto incidence rate lowest inthelastfive years. The accident havewhen accidentrates beenattheir achieved. Datafor 2007isproofenough, continuous improvement isbeing positiveand safety as have beenvery inhealth The resultsofthenewstrategy andformats,instructions fromit. derive procedures,as thegeneral work All othermoredetaileddocuments, such should bedoneandwhodoit. policyandexplainswhat organisational thesystem,Manual describes defines the revision ofthesystem. A Management in laboursafety” Training: apriority company ethicsandmethodsfromthe whoareshown younger members personnel, especiallyincorporated the inthegroupandatnewly work directed atthosewhoalready training in-house demandpermanent operates whereDuro Felguera The sectors customers. offered toits products andservices to evolve throughoutallthe satisfactorily demands,in market allows DuroFelguera its professionals totheconstantchanges company toadapt inthelastfew years beingmadeby the effort The training projects. several sessionsin training and hasorganised hasinvolvedFelguera itssubcontractors the “zero accidents” objective. Duro safety andtoimplementactionsachieve ofhealthand inmatters experiences have createdtosharetheir collaborators utilitycompany anditsmain the electrical Pravenio Agreement withEndesawhich tothe subscribed Energía Duro Felguera ofCastellónandLaRábida.refineries outonthe carried theworks during procedures andthelackofaccidents compliancewithsafetyOil for theirstrict from theoilcompaniesCEPSAandBP Revestimientos (Feresa)received merits the bestyear “2007 was

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word go. Both aspects were dealt with in by various subsidiaries to continue with 2007; a year in which in-house training the second phase of the Master. In increased considerably. October the programme directed at engineers commenced, with 23 young The number of training hours given in graduates who concluded their training the year practically doubled the previous in March 2008 and who were also taken The Principality of Asturias year’s figures, going over 22,100 compared on by the group. awarded a prize to 11,000 in 2006. A total number of 243 for the work workers participated in these training Since the CETA-DF was set up in 2003 carried out sessions whereas the previous year the two groups of technicians and four groups in our figure was 177. The breakdown by type of graduate engineers have taken part, engineer of training includes 77 continuous training i.e. 130 participants in total, and the training centre courses totalling 20,000 teaching hours majority have been employed by the in which 223 workers participated. In company and continue to work on the 54 addition, the company organised various projects being carried out. occupational training courses with more than 40 people participating and 2,000 Throughout the year, CETA-DF organised teaching hours. seminars and courses for the company’s personnel in which more than 100 In 2007 the Centro de Formación en workers took part. The subjects were Técnicas Avanzadas de Duro Felguera various: labour legislation, the “turnkey (CETA-DF), (Centre for Advanced contract”, insurance, project management, Techniques) where a Master in Industrial transport insurance and project follow Project Management is given, co-financed up and control. by the government (Instituto Nacional de Empleo (INEM)) and the European The philosophy of the CETA-DF is to Social Fund, provided a programme for offer practical training, specific to industrial middle management which 23 technicians project management, and to transmit the took part in, 20 of which were employed work ethic and culture of Duro Felguera.

The teaching staff is composed mainly of company management, and the Master in Project Management is a model to be followed by other companies, as stated by the jury from the Employment Service of the Principality of Asturias, which in the 2007 edition acknowledged the work carried out by the company in this training CORPORATE RESPONSIBILITY centre and bestowed the Good Practice in Human Resources Management Award (“Premio a la Buenas Prácticas en la Gestión de Recursos Humanos”).

The jury pointed out that the Master programme directed at technical and graduate engineers transmits the experience gained by the company’s management to the new professionals, for Industry, Graciano Torre. 2008, chairedby thePrincipality’s councillor which tookplaceinOviedoFebruary theceremony during managers Felguera The award wascollectedby Duro company. thefutureof thereby guaranteeing the company destined “From 2005to2007 20 millioneuros Tecnológico which deGijón(Asturias) Centre attheParque Científico The Engineering, I+D+iandQuality type ofactivitywithinthecompany. at thebeginningof2008topromotethis of government ofthePrincipality Asturias andthe by DuroFelguera subscribed asisreflectedintheagreement few years thenext thatwillincreaseduring effort euros onactivitiesrelatedtoI+D+i, an 2007 thecompany laidout20million customer demands. 2005- Intheperiod processes andproductstoadaptnew renovation inmanagement methods, capital goodsrequirespermanent andmanufacturing toindustry services power areas, andindustrial providing projectsinthe The execution oflarge change intechnologyisconstant. wherethe Felguera, insectors operating elements for acompany like Duro (I+D+i usingSpanishinitials)arekey Research, Development andInnovation Innovating toprogress to R&D”

DURO FELGUERA 07 ANNUAL REPORT 55 CORPORATE RESPONSIBILITY7

started to be built in 2007 and will be The project considered two types of inaugurated at the end of 2008, will processes: direct combustion and indirect contribute to stimulating the group’s combustion with prior gasification. Another commitment by centralising in one project carried out by Duro Felguera modern building all assets related with Energía was to optimise erection planning I+D+i. Investment made on this building activities in adapting coal-fired facilities to in 2007 went over 9.4 million euros. the use of imported coal.

In the field of gas-fired generation facilities, the company continued on the project to optimise their efficiency. The aim is to develop a family of “software optimisation products” that will improve operations at this type of facility and to utilise the 56 products on existing control platforms. The objective is to achieve improvements in performance of the cycle, a reduction in fire-ups and to increase the unit’s lifespan.

Furthermore, Duro Felguera Energía participates in the CO2 CENIT project which researches the CO2 cycle: reduction in emissions, capture, storage and utilisation/destruction of the CO2 molecule.

In addition, during 2007 the company The initiative is being developed by a carried out various research projects consortium led by the electric utilities which came to a sum of 5.8 million euros; Endesa and Unión Fenosa and in which a figure that was slightly higher than the the main Spanish companies in the power previous year’s. In total, investments in sector and six universities participate. This I+D+I reached 15.2 million euros, 53.5% project comes under the Ministry for more than in 2006. Industry’s "Ingenio 2010" CENIT pro- gramme (Consorcios Estratégicos In the power systems area, the company Nacionales de Investigación Técnica), Research focused research on three projects related whose main objective is to encourage in the power to introducing improvements in coal-fired lines of research in national strategy areas CORPORATE RESPONSIBILITY systems area and combined cycle power generation of major import. is one of facilities. Duro Felguera’s The Industrial Plants line worked on two For the former, works commenced on lines of research related to the same priorities adapting this type of facility to using number of projects in the port installations biomass material. In the first phase the area: in one case, for mineral handling and technology to be used to optimise the the other, the loading and unloading of construction process of this type of facility natural gas. In the first case, work is being was studied so that the commercialisation carried out on how to improve the of a biomass plant could be carried out. transport and offloading system of large for rail transport. for rail technologies inthe field ofinfrastructures Melt todevelopby new Felguera out carried isthework most noteworthy in2007, workshops manufacturing the Of theI+D+iactivitiesincompany’s on land. jetty thatisconnectedtothegasnetwork finally theCNGcouldbepumpedto stored andregasified viaanothershipand fromthetanker,LNG couldbeimported efficient mannerpossible. Inthisway the regasification plantonlandinthemost to connectamethanetanker tothe Europe, andlookstodevelop technology around in Spainandothercountries gas highdemandsfor natural the current The projectaroseasaconsequenceof floating platforms. and CNGaswell asregasification on toloadandunloadLNG terminals port The secondproject’s objective istodesign thatarenewtothesector.tools atports) goods(unloading ofindustrial of aseries project involves thedesignandproduction (1,300tonsand60mhigh).gantries This “Felguera CaldereríaPesada“Felguera large equipmentfor the large is constantly improving petrochemical sector” piece. oftheend properties metallographic gaining improved mechanical and ofthemolten metal,the properties and process basedongreaterknowledge of achieving animprovement inthefoundry withoutaffecting thequalityofcastpieces, emissions -atoxic substancefor workers- objectives aretoreduceformaldehyde processeswhosemain in foundry and astudyofnewresinscatalysts process developing anewmetallurgical Another significant projectisrelatedto (4Mw). power windgenerators ofhigh used infuturemanufacturing iron,module 8spheroidalgraphite tobe improve processesfor casting metallurgy to of Oviedotodesignexperiments withtheUniversity contract collaboration equipment line, Meltsigneda Felguera With reference tothewindpower crossings.to manufacture rail a manganesesteeloflow microporosity the researchcentreINASMETtoobtain addition, with Meltcollaborates Felguera efficiency.achieving greaterenergy In and tocastatlow temperatures, thereby iron,graphite andchills toeliminatesprue whencastingspheroidal with filters company systems developed newpouring To improve productionprocessesthe manoeuvres”. “device toreducestressincrossing was concededfor theinvention ofa lines inservice. Also in2007, thepatent devicesfor metro substitute railwaytrack company alsodevisedanewsystemto (ADIF). Ferroviarias Infraestructuras The and wasexecuted for de Administrador network which isnewtotheSpanishrail low profiles, andasymmetric sleepers gauges,for international usingconcrete the designofadouble sleepercrossing activitieswere on The mostimportant

DURO FELGUERA 07 ANNUAL REPORT 57 CORPORATE RESPONSIBILITY7

The company is also working on another research project to extend the range of products by incorporating pressure vessels with thicker walls than have been manufactured to date. Other improvements to the production process will also be incorporated mainly in welding tasks.

The subsidiary Felguera Construcciones Mecánicas (FCM) focussed I+D+i work on a project to develop the manufacturing process of proton ray equipment used in cancer treatment. This would be a new 58 therapy on the world markets that would be a great advance in the treatment of cancer.

The project will create a first model of the equipment and develop the production process for a series. In this Felguera Calderería Pesada, the subsidiary manner, equipment could be made to specialised in manufacturing high pressure treat tumours that may not be removed vessels for the petrochemical sector, by surgery. Furthermore, the proton ray worked on a project to incorporate treatment concentrates the dose on a photogrammetry technology in specific area, minimising damage to the Felguera Melt production process control. surrounding tissue, which is of vital is permanently importance with children as is does not The objective is to use this technique for damage developing or growing tissue. innovating the first time in the industrial field to in the field of reduce time spent on quality control rail track during manufacturing and in the final devices inspection stage of the equipment, and also achieving more accurate measu- rements.

Photogrammetry applies computer aided treatment to digital photography obtaining CORPORATE RESPONSIBILITY two or three-dimensional models from which measurements can be taken directly. Using this method, quality control need only be made in the final stages of manufacturing thereby avoiding physical access to parts, with a resulting financial saving and avoiding labour risks. The system allows real not questionable registers of the status of manufacturing. concern Quality andenvironmental products. storage, collection andrecyclingofwaste activitiestoimprove outvarious carried Técnicas deEntibación(Tedesa) in2007 environment. their activitieshave onthesurrounding investments inreducingtheimpactthat systems,and certification andmade and theenvironment, improving control progressed in2007thefield ofquality ofDuroFelguera subsidiaries The various will bedeveloped. a methodofactionandtherequiredtools for which manoeuvres outsidethefurnace out procedure would betocarry quality andsafety for theworkers. The the methodsusednowadays, bothin for steelproduction. The aimistoimprove andmaintainingblastfor furnaces repairing procedure project todesignanoperation ona Montajes yMantenimientoworked Felguera subsidiary Duro Felguera for industry,In thefield ofservices the improved significantly inmatters “The group’s have subsidiaries of qualityandrespectfor the environment” carried outinaccordancewiththe Basic carried environmental protections, which were validity ofthe investments made on the of of thePrincipality certified Asturias both cases. Inaddition, theGovernment resultsin respectively withsatisfactory 9001:2000 andISO14001:2004standards management systemsaccording toISO out onthetwo qualityandenvironment Melttheauditswere carried In Felguera Industries. withMitsubishiHeavy in consortium Compostilla, Ladaand Velilla power plants ontheMonfalcone(Italy),working Teruel, type offacilityemits. The company is the sulphurcontentoffluegasesthatthis power plants, whoseobjective istoreduce projectsoncoal-fired desulphurisation out companies capable ofcarrying isonethefew Spanish Duro Felguera European andLatin countries.American projects simultaneously invarious which handlesmorethantenlarge growing needsinthislineofbusiness, on newprofessionals toattendthe by LRQA. took The QualityDepartment ISO9001-2000,quality certificate given alsorenewed is Energía Duro Felguera results.Engineer withsatisfactory studied aMasterinEuropean Welding Quality and Technical Departments Inaddition,certificate. fromthe personnel renewing theUNE-EN-ISO9001:2000 asaprevious phaseto all personnel bilización alaCalidad Total) wasgiven to on Awareness to Total Quality(Sensi- 2006 toMarch2007, anintensive course goingfromOctober theperiod and during Mecánicas Construcciones In Felguera organisation. are available toalllevels withinthe policies sothatthesubsidiary’s Intranet wasputontothecorporate information In thequalityarea, alltheexisting

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Waste Management Plan in Asturias (Plan Básico de Gestión de Residuos en Asturias). These investments which went over 844,000 euros, were aimed at modernising the sand recovery system in the production process to increase the amounts recovered, reducing the waste generated.

In 2006 the company requested Integrate Environmental Authorisation (Autorización Ambiental Integrada (AAI)) from the local authorities to afford greater protection for the environment as a whole, based 60 on avoiding the transfer of contamination from one point to another, among other matters. location, all of which aims to provide a general high level of protection for the In 2007 the administration process for environment as a whole and for the health this request continued. The AAI must of the population. Environment establish, among other matters, the Limit protection management Emission Values to air and water of certain Felguera Rail, the subsidiary specialised in is present in our polluting substances, taking into manufacturing rail track devices for high consideration the Best Techniques speed rail lines, set up a joint quality- industrial Available (Mejores Técnicas Disponibles) environment management system which service operations (but without prescribing a specific is expected to be certified by an external technology), the technical characteristics authority. of the installation and its geographical CORPORATE RESPONSIBILITY “Duro Felguera maintains high levels of social commitment in the areas where it operates”

Involvement with social surroundings The company maintained its commitment in 2007 with its social surroundings in those areas where it is most involved.

In the Principality of Asturias, the birthplace and headquarters of the company and where most of its installations are located, Duro Felguera continued to collaborate with various organisations - charities, social, cultural, and financial- a policy which was made extensive to some of the countries where the company is executing 61 large projects.

Throughout the year Duro Felguera made financial contributions for local cultural initiatives such as Museo de la Siderurgia The subsidiary Montajes de Maquinaria (Steel Museum), located in the Asturian de Precisión (Mompresa) obtained official town of La Felguera, occupying installations approval of the EMAS 761/2001 regulation which once belonged to the company; in 2007 and its Environmental Statement and the new Centro de Arte y Creación was verified. The company became one industrial LABoral (Laboral Industrial Arts of the companies registered under the and Creative Centre), an open space in Eco-Management and Audit Scheme in the Laboral University in Gijón dedicated 2008. to art, technology, science and the advanced visual industries. The main objective is to promote continuous improvements in environ- The company maintains its backing of mental performance by applying an various social-cultural organisations in La environmental management system, Felguera via the Marino Gutiérrez Suárez including its review, reporting on foundation of which Duro Felguera is a environmental performance, and direct trustee, as well as the Príncipe de Asturias implication of its personnel. It also places foundation, where the company has been special importance on aspects related to a patron for various years; the Real legislation. Instituto Elcano foundation, as repre- sentative of its Business Advisory Council, Duro Felguera Energía was a finalist in or the Escuela Asturiana de Estudios the VI Supplier of the Year Award (Premios Hispánicos foundation, organiser of the Suministrador del Año) which the electric summer courses at La Granda. utility Iberdrola bestows in the Large Company category. The general manager The stand that Duro Felguera traditionally of the power systems line, Francisco installs in August at the Asturias Martín Morales de Castilla, collected the International Trade Fair was dedicated to prize given to company for excellence children in 2007, to explain what the and quality as supplier. company does in a simple way. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO CORPORATE RESPONSIBILITY7

DfNet, the new corporate intranet

In July 2007 the new corporate intranet went into operation. It was called DfNet and was conceived as a tool with two uses: on the one hand, to be a work tool via which various processes are carried out with differing hierarchical levels or company departments involved; and on the other, to be a means of internal communication to keep the different levels of the organisation informed on matters 62 of common interest and to aid internal circulation of relevant matters. In addition, DfNet tries to be an element in the backbone of the whole company to transmit the values and ethics of Duro Felguera.

During the fair, a painting contest was At first level the intranet deals with matters held to raise money for Unicef. More than of general interest for all the company 1,300 children participated and prizes and has specific sections for centralised were given to the best three works from departments, leading to the various each age category. subsidiaries of the group. To check the calendar of workdays, to send memos to In addition, in Ciudad Guayana, the a certain group of employees, to carry Venezuelan town in Bolivar state where out and tabulate internal questionnaires, Duro Felguera has carried out various to look up documents on quality or the industrial projects in the last few years environment, to unload parts of the for Ferrominera Orinoco, the company corporate identity manual or to have supported the construction of a new access to complete photographic files are The newcorporate medical centre for cancer patients, an just some of the uses that the Intranet intranet initiative promoted by the foundation offers its users. in Fundación Hemato Oncológica de assists developing Guayana (Fundahog).

CORPORATE RESPONSIBILITY internal communications The project will construct a chemotherapy centre to attend neoplasic patients that require this treatment.

The new medical centre has an area for adults and another for children, as well as a multiple use building where psychology workshops are held for patients and their families. Corporate government Felguera BoardofDirectors.Felguera company SomióoftheDuro Inversiones Álvarez Arrojo, representative ofthe occupied amonthlaterby JuanGonzalo member. was The vice-chairmanship his resignation, but remainedaBoard Board, JoséLuisGarcía presented Arias ofthe In Decemberthevice-chairman on aday-to-day basis. responsible for managingthecompany Committee, body thecorporate a memberoftheManagement Investments Manager and became General was appointed Acquisition and Suárez, memberoftheBoardDirectors, In September Angel Antonio del Valle between sixandtwelve members. these statethattheBoardmay have modification ofthecompany by-laws, as S.A. This changedidnotcausea y Electricidad, S. L., andPHB Weserhütte, ten aftertheresignationof TSK, Electrónica fromtwelve to number ofitsmembers reducedthe The BoardofDirectors “Professionals ofrenowned prestige make upthenew Advisory Committee” Advisory and investors Relations withshareholders six-month period andits evolution in six-month period showing themostrelevant dataofthe the company provided presentations detailed, information, reliable and recurring more In anaimtooffer themarket markets. attention totheinternational of thecompany’s business, paying special ofinterestfor thedevelopment matters Committeedealswith The Advisory BoardofDirectors.of theDuroFelguera Rodríguez García, engineerandmember Chemical Europe, and Acacio Faustino chemist andex-presidentofDow Energy; Eduardo Sánchez Morrondo, for general economist andex-secretary Tourism; Segura,Antonio Fernández minister for Industry, Commerceand Aranzadi, engineerandeconomist, ex- Financieros Internacionales; Claudio and chiefexecutive officer of Asesores Ontiveros Baeza, Economicsprofessor byconsulting bodyformed Emilio academic andbusiness worlds. Itisa prestige intheSpanisheconomic, up withprofessionals ofrenowned Committeewasset In 2007an Advisory Manuel GonzálezGonzález. by Javier Sierra Villa whosubstituted Principado, S. L., cametoberepresented Urbanasdel occupied by Construcciones The postontheBoardofDirectors and SaNostra. banks: Cam, Unicaja, Ibercaja, CajaDuero de Buenos Aires andtheSpanishsavings associates includeBancodelaProvincia EBN Bancoandisacompany whose Financieras,Inversiones S. L., belongsto capital.Duro Felguera Liquidambar, communicated itsacquisitionof6% Financieras,Inversiones S. L., officially whenthecompany Liquidambar,occurred Also inDecember, anotherrelevantevent

DURO FELGUERA 07 ANNUAL REPORT 63 CORPORATE RESPONSIBILITY7

Analistas Financieros). Meetings were also held with company and stock analysts in New York, Paris and London, apart from participating in the 3rd MedCap Forum held in Madrid and organised by Spanish Markets and Stock Exchanges (Bolsas y Mercados Españoles).

The international management consultants AT Kearney included Duro Felguera for the first time in its annual ranking of best managed Spanish companies. In the 2007 ranking, the company appears twelfth on the list of the top 50 industrial and 64 services companies who have had the greatest increase in sales over the last few years.

In its report “Gestor 2007” AT Kearney relation to the previous year, along with states that “Another year running Duro the results for the first six months that Felguera has had the most favourable the Stock Exchange Commission demands. return on equity among the companies analysed, with positive contributions to As has happened in the last few years, the parameter analysed, from the group’s the company’s leading members appeared three segments of activity: large projects, before a group of analysts and investors services and manufacturing. The group at the Madrid and Barcelona Stock maintains the steady growth started three Increased market Exchanges to offer a presentation on the years ago and consolidates, once again, transparency group’s situation and its expectations for the positive results of its interna- encourages interest in the the future, both events organised by the tionalisation effort, which go to make up company by Institute of Financial Analysts (Instituto de 70 per cent of the new order intake”. analysts CORPORATE RESPONSIBILITY DIRECTORY8 DIRECTORY

HEAD OFFICE MADRID OFFICE FELGUERA MONTAJES8 DURO FELGUERA, S.A. Y MANTENIMIENTO S.A. C/ Marqués de Sta. Cruz, 14 DURO FELGUERA, S.A. Centro de Proyectos e Ingeniería 33007 Oviedo (Asturias), Spain C/ Orense 58, 12ª A + B C/ Hornos Altos, s/n, 3ª (Valnalón) Ph.: +34 98 522 97 00 28020 Madrid 33930 La Felguera - Langreo (Asturias) Spain Spain CHAIRMAN Ph.: +34 91 598 01 50 Ph.: +34 98 567 97 50 Ph.: +34 98 520 76 32 Fax: +34 91 598 01 26 Fax: +34 98 567 97 97 Fax: +34 98 521 93 39 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] SUBSIDIARIES FELGUERA REVESTIMIENTOS, S.A. CORPORATE GENERAL MANAGER FERESA Ph.: +34 985 20 77 41 ACERVO, S.A. Centro de Proyectos e Ingeniería Fax: +34 98 521 93 39 C/ Hornos Altos, s/n, 3ª (Valnalón) C/ Marqués de Sta. Cruz, 14 E-mail:[email protected] 33930 La Felguera - Langreo (Asturias) 33007 Oviedo (Asturias) Spain Spain Ph.: +34 98 567 97 50 ACQUISITIONS & Ph.: +34 98 522 63 83 Fax: +34 98 567 97 97 E INVESTMENTS Fax: +34 98 521 23 16 66 E-mail: [email protected] Ph.: +34 98 522 97 00

Fax: +34 98 521 93 39 FELGUERA CALDERERÍA PESADA, S.A. TÉCNICAS DE ENTIBACIÓN, S.A. E-mail: Travesía del Mar, s/n [email protected] 33212 Gijón (Asturias) TEDESA Spain Polígono de Silvota, parcela 10 GENERAL SECRETARY Ph.: +34 98 532 26 00 33192 Llanera (Asturias) AND LEGAL COUNSEL Fax: +34 98 532 56 50 Spain Ph.: +34 98 522 60 20 E-mail: [email protected] Ph.: +34 98 526 04 64 Fax: +34 98 522 99 56 Fax: +34 98 526 14 16 E-mail: [email protected] FELGUERA CONSTRUCCIONES E-mail: [email protected]

MECÁNICAS, S.A. FELGUERA BIODIÉSEL GIJÓN BUSINESS & Crta. de Langreo-Oviedo, s/n C/ Marqués de Sta. Cruz, 14 ORGANISATION 33930 Barros (Asturias) 33007 Oviedo (Asturias) Ph.: +34 98 522 97 00 Spain Spain Fax: +34 98 521 93 39 Ph.: +34 98 567 97 00 Ph.: +34 98 522 97 00 E-mail: [email protected] Fax: +34 98 567 97 02 Fax: +34 98 521 93 39 E-mail: [email protected] E-mail: [email protected] FINANCE

Ph.: +34 98 522 63 83 / 22 99 19 FELGUERA MELT, S.A. DURO FELGUERA PLANTAS Fax: +34 98 521 23 16 / 21 96 99 Prolg. Ing. Fernando Casariego, s/n E-mail: [email protected] 33930 La Felguera (Asturias) INDUSTRIALES, S.A. Spain Centro de Proyectos e Ingeniería COMMUNICATION & IMAGE Ph.: +34 98 569 56 11 C/ Hornos Altos, s/n (Valnalón) Ph.: +34 98 522 97 00 Fax: +34 98 569 64 65 33930 La Felguera (Asturias) Fax: +34 98 521 93 39 E-mail: [email protected] Spain E-mail: [email protected] Ph.: +34 98 567 98 00 FELGUERA RAIL, S.A. Fax: +34 98 569 37 20 E-mail: [email protected] HUMAN RESOURCES Ablaña s/n

Ph.: +34 98 522 97 00 33600 Mieres (Asturias) Fax: +34 98 520 39 34 Spain FELGUERA TECNOLOGÍAS DE LA E-mail: [email protected] Ph.: +34 98 545 41 47 INFORMACIÓN S.A. Fax: +34 98 545 39 03 Parque Tecnológico de Asturias, P-13 B DURO FELGUERA, S.A. ENERGÍA E-mail: [email protected] 33428 Llanera - Asturias C/ Rodríguez Sampedro, 5, 7º Spain 33206 Gijón (Asturias) Ph.: +34 98 527 29 89 Spain Fax: +34 98 527 59 60 Ph.: +34 98 517 94 00 E-mail: [email protected] DIRECTORY Fax: +34 98 534 64 74 E-mail: [email protected] E-mail: [email protected] Fax: +34985693720 Ph.: +349856700 Spain (Asturias) 33930 LaFelguera C/ Hornos Altos, s/n(Valnalón) Centro deProyectos eIngeniería MHI-DURO FELGUERA, S.A. E-mail: [email protected] Fax: +34916402100 Ph.: +34916402051 Spain 28230 LasRozas(Madrid) C/ JacintoBenavente, 4 LasRozas Parque Empresarial FELGUERA I.H.I., S.A. ASSOCIATED COMPANIES E-mail: [email protected] Fax: +34985683191 Ph.: +349856760 Spain (Asturias) 33930 LaFelguera C/ Hornos Altos, s/n(Valnalón) Centro deProyectos eIngeniería OPEMASA OPERACIÓN Y MANTENIMIENTO, S.A. E-mail: [email protected] Fax: +34985683191 Ph.: +349856750 Spain (Asturias) 33930 LaFelguera C/ Hornos Altos, s/n(Valnalón) Centro deProyectos eIngeniería PRECISIÓN, S.A. MOMPRESA MONTAJES DEMAQUINARIA DE Ph.: 00541143138566 Buenos Aires, Argentina C1049AAG C/ Tucuman, 335-1ºpiso ARGENTINAS, S.A. (SEASA) SOLUCIONES ENERGÉTICAS ARGENTINA E-mail: [email protected] Fax: +582869719120 +582869719120 +582869719773 Ph.: +582867180123/0124/0136 Estado Bolívar, Venezuela Alta Vista, Ordaz Puerto con Avda.C/ Gury Guayana Torre CEM, piso7, Oficinas 7-01y7-02 MINAS DE VENEZUELA, S.A. FELGUERA PARQUES Y VENEZUELA E-mail: [email protected] Fax: +525552784913 Ph.: +525552784900 03800 MéxicoDF(Mexico) Avda. Revolución, 468-PB (PYCORSA) PROYECTOS EINGENIERÍAPYCOR, S.A. MEXICO OFFICES ABROAD REPRESENTATIVE SUBSIDIARIES & E-mail: [email protected] Fax: +34985674761 Ph.: +34985691948-0965 Spain 33920 Riaño, Langreo(Asturias) C/ LosSotos Polígono Riaño, Industrial II, Parc. 24 INDUSTRIALES, S.L. MEI, MONTAJES ELÉCTRICOS E-mail: [email protected] Fax: +34985693720 Ph.: +349856700 Pradesh,Andhra India Raj Bhavan Road, Sargam Villa Appartments Flat Nº404, 4thFloor, India ProjectOffice FELGUERA GRÚAS Y ALMACENAJE, S.A. INDIA www.duro-felguera.jp E-mail: [email protected] Fax: +81452220799 Ph.: +81452220431 Yokohama, Kanagawa, Japan Motohama-cho, Naka-ku 3-21-2, 11thFloor, HeliosKannaiBuilding TOKYO OFFICE JAPAN Fax: +(39)0632803227 Ph.: +(39)0632803230/41 00192 Roma Via Attilio Regalo, 19 ROME OFFICE ITALY Fax: +(51-1)5776924 Ph: +(51-1)2421672 (Lima)PeruOficinas 204y307Miraflores Avda. JoséPardo 1167 S.A.C. TURBOGENERADORES DELPERÚ, PERU

DURO FELGUERA 07 ANNUAL REPORT 67 Oneand ahalf centuries contributing to industrial 68 development DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 2007 DURO FELGUERA 07 ANNUAL REPORT9 CORPORATE GOVERNANCE REPORT 9 INDEX

71 CORPORATE STRUCTURE Share capital and major shareholders Private agreements between shareholders Treasury stock

72 BOARD OF DIRECTOS

Members of the Board Status of the directors Composition (number, appointment, requirements, re-appointment and vacation) Members of the Board Chairman Vice-chairman Secretary Vice-secretary 70 Procedures (meetings and agreements) Board Committees Audit Committee Committee for Appointments, Remuneration and Expediting of Standards Contracts Committee

81 MANAGEMENT WORK COMMITTEES Management Committee Risk Committee

82 CONNECTED OPERATIONS

82 INTER-GROUP OPERATIONS

83 ANNUAL GENERAL MEETING OF SHAREHOLDERS (AGM) General Meeting Regulations Information on the last General Meetings Costs arising from the last Shareholders’ General Meeting Information means for the shareholders

90 AUDIT

91 RELEVANT EVENTS COMMUNICATED TO THE STOCK EXCHANGE COMMISSION INDEX Board Committees Procedures (meetingsandagreements) oftheBoard Members Composition (number, appointment, requirements, re-appointmentandvacation) Status ofthedirectors oftheBoard Members BOARD OFDIRECTOS CORPORATE STRUCTURE RELEVANT EVENTSCOMMUNICATED TO THE STOCK EXCHANGECOMMISSION AUDIT ANNUAL GENERALMEETINGOFSHAREHOLDERS(AGM) INTER-GROUP OPERATIONS CONNECTED OPERATIONS MANAGEMENT WORK COMMITTEES Contracts Committee Contracts Secretary Costs arising fromthelastShareholders’ Meeting Costs arising General Committee for Appointments, andExpeditingofStandards Remuneration Audit Committee Vice-secretary Vice-chairman Chairman Treasury stock agreementsbetween shareholders Private Share capitalandmajorshareholders Information meansfor theshareholders Information Meetings onthelastGeneral Information MeetingRegulations General Risk Committee Management Committee 1 1.b 1.c 1.a rd 2007, andhasnotacquiredcompany sharesnorhave thecompany subsidiaries. inthe granted hasnotexercised Meetingheldon3May theright AnnualThe Boardofdirectors General ofany.commission hasbeeninformed The company to31December2007, isnotaware agreementnoriftheStockExchange ofany private and whicharenotonrecord, exceptfor thoseattendingorrepresentedatthe AGM. thathave notbeencommunicated tothecompanyThe restofthecompany's sharesconstituteparticipations withasharecapitalof5%ormorewere: major shareholders of Madrid, BarcelonaandBilbao, having thesamepoliticalandeconomicrights. On31December2007, the 0.50 euroseach, anddisbursed. totally subscribed All ofthesharesareofficially quotedontheStockMarkets ofanominalvalue securities representedby meansofbook-entry by 102,016,601bearershareholders The sharecapitalofDURO FELGUERA, S.A., on31December2007, was51,008,300.50euros, integrated LIQUIDAMBAR, Financieras, Inversiones S.L. Construcciones Termoracama, S.L. MELCA, deInversiones S.L.,Cartera yvinculadas Residencial Vegasol, S.L. TSK ElectrónicayElectricidad, S.A. ElPiles,Inversiones S.L, y Vinculadas PRIVATE AGREEMENTS BETWEENSHAREHOLDERS SHARE CAPITAL AND MAJOR SHAREHOLDERS CORPORATE GOVERNANCE CORPORATE STRUCTURE TREASURY STOCK REPORT 19.87 % 10.01 % 23.62 % 6.78 % 6.78 % 6 % 71 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 2 BOARD OF DIRECTORS

MEMBERS OF THE BOARD

CHAIRMAN Mr. Juan Carlos Torres Inclán VICE-CHAIRMAN Mr. José Luis García Arias MEMBERS Inversiones Somió, S.R.L. (represented by Mr. Juan Gonzalo Alvarez Arrojo) Inversiones el Piles, S.R.L. (represented by Mr. Angel Antonio del Valle Suárez) Construcciones Urbanas del Principado, S.R.L. (represented by Mr. Javier Sierra Villa) Construcciones Termoracama, S.L. (represented by Mr. Ramiro Arias López) Residencial Vegasol, S.R.L. (represented by Mr. José Antonio Aguilera Izquierdo) Mr. Marcos Antuña Egocheaga Mr. Acacio Faustino Rodríguez García 72 Mr. José Manuel Agüera Sirgo

CORPORATE GENERAL MANAGER (NON DIRECTOR) Mr. Florentino Fernández del Valle SECRETARY (NON DIRECTOR) Mr. Guillermo Quirós Pintado VICE-SECRETARY (NON DIRECTOR) Mr. Secundino Felgueroso Fuentes LEGAL ADVISOR Mr. Agustín Tomé Fernández

HONORARY CHAIRMAN Mr. Ramón Colao Caicoya

STATUS OF THE DIRECTORS

EXECUTIVE DIRECTORS Mr. Juan Carlos Torres Inclán

EXTERNAL DIRECTORS

MAJOR SHAREHOLDING MEMBERS Mr. José Luis García Arias Inversiones Somió, S.R.L. Inversiones el Piles, S.R.L. Construcciones Urbanas del Principado, S.R.L.

BOARD OF DIDRECTORS Construcciones Termoracama, S.L. Residencial Vegasol, S.R.L.

INDEPENDENTS Mr. Marcos Antuña Egocheaga Mr. Acacio Faustino Rodríguez García Mr. José Manuel Agüera Sirgo 1. or until the legal period toholdtheshareholder’sor untilthelegalperiod meetingtoapprove theaccounts ofthepreviousyear. electedby co-option willoccupy thepost untilthefollowingThe Boardmembers Shareholder’s Meeting willholdoffice foroffive amaximum andmayThe directors period bere-elected. years the Shareholder’sproposedfor re-appointmentby theBoardofDirectors. Meetingofthe directors The Committeefor Appointments, to prior and ExpeditingofStandardswillbeinformed Remuneration 1.4 RE-APPOINTMENT AND VACATION OFOFFICEBY DIRECTORS selectionprocess. be electedafteraformal care withthepostsofindependentboardmemberwhomust comply withtheseregulationsandwhowill toelectcandidatesofrenowned solvency, effort will make every competenceandexperience, takingspecial andtheCommitteefor The BoardofDirectors Appointments, and ExpeditingofStandards Remuneration The office ofboardmember willbecompatible withany otherfunctionwithinthecompany. regulations. be involved inany oftheactivitiesclassified asincompatible orprohibitedby Company law orthecompany In any case, tobedesignatedboardmemberorrepresentative ofaboardmembermust not theperson Law), tobeashareholderofthecompany. tobeelectedboardmemberby co-optionitisnecessary In accordancewiththe Texto RefundidodelaLeySociedades Anónimas (TRLSA)(RevisedCompany reaches thisage. the Boardagreesunanimously nottoapply thislimitbefore theDecember31inyear whenhe/she member. However, oftheBoardaslong thisagelimitwillnotaffect thememberappointedChairman outtheroleofboard The Company by-laws stipulateamaximum ageof70tobeappointedorcarry 1.3 REQUIREMENTSFORBEING APPOINTED DIRECTOR Standards. by the Committeefor proposalandreport Appointments,corresponding andExpeditingof Remuneration must oftheco-optingfacultiesithaslegally attributed beprecededby the taken by theBoardby virtue submittedtotheShareholder’sThe proposalsmadeby theBoardofDirectors meetinganddecisions accordance withthestandardscontainedinCompany Law (LeydeSociedades Anónimas). willbe appointedby theShareholder’s in The Boardmembers meetingorby theBoard ofDirectors 1.2 APPOINTMENT The Boardwillalsodesignatealegalcounsellorfor theBoardofDirectors. the directors. within thelimitsfixed by the company by-laws. The Shareholder’s meetingwillappoint, andre-elect ratify The Shareholder’s Meeting, attheBoard’s proposals, oftheBoard thenumber ofmembers willdetermine a maximum oftwelve (12)members. In accordancewiththecompany by-laws, ismadeupofaminimum ofsix(6)and theBoardofDirectors 1.1 NUMBEROFBOARD MEMBERS CONSEJO DE ADMINISTRACIÓN INFORME DEGOBIERNO CORPORATIVO COMPOSITION 73 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 2 BOARD MEMBERS

The Board members will vacate their office when the period for which they were appointed expires, when the Shareholder’s Meeting so decides or when they are found to be involved in any of the prohibitions stipulated by law.

The Board members must tender their resignations to the Board and duly resign when they are involved in any of the prohibitions stipulated in Art. 124 of the “Texto Refundido de la Ley de Sociedades Anónimas” (revised Company Law) and any other applicable legislation.

2. BOARD MEMBERS

2.1 CHAIRMAN The Board of Directors will appoint a chairman from among its members. The range of powers and in particular whether the Chairman may or may not carry out the functions corresponding to the company’s top executive will be decided by the Board when being appointed.

It is the chairman’s responsibility to call the Board Meetings, to decide on the agenda and to chair the debates. The chairman however will call a meeting of the Board and include matters requested in the agenda when required by at least two board members.

74 In case of a tie of votes, the chairman’s vote will be decisive.

2.2 VICE-CHAIRMAN The Board may appoint one or more vice-chairmen, who will substitute the chairman in his absence.

2.3 SECRETARY It is not a pre-requisite for the secretary to be a member of the Board to be appointed.

The Board secretary will aid the chairman in his functions and will ensure that the Board runs smoothly, being especially responsible for providing the Board members with advice and the necessary information, keeping the Company official documentation, recording the minutes of Board meetings and witnessing agreements thereof.

The secretary will ensure the legality of the Board’s actions and will guarantee that its procedures and rules of conduct be respected and regularly revised.

The secretary will also be responsible for interpreting corporate management law and for verifying that the company complies therewith, in accordance with these regulations. In addition, the secretary will analyse corporate management law recommendations to be included in the company by-laws.

2.4 VICE-SECRETARY The Board of Directors may appoint a vice-secretary who need not be a Board member to assist and substitute the secretary of the Board in case of absence.

The vice-secretary may attend the Board meetings to substitute or aid the secretary when the chairman so decides. BOARD MEMBERS 3. and theseregulations. and decisionsareinaccordancewithlaw, thecompany by-laws, thestockexchangecommissionstandards willwatchandadvisetheBoardonwhetheragreements The legaladvisorfor theBoardofDirectors but communicationpermits willbeinaccordancewithlegalstipulations. ordecisionspublic. matters Confidentiality willnotberequiredinthosecaseswherelaw make certain and shareholder’s regulationsofthestockexchangecommissionagreesto interestsandthetransparency discussed,confidential natureofthe matters exceptwhentheBoardofDirectors, thecompany’s considering willmaintainthe willbesecretandthemembers discussedby theBoardofDirectors All thematters required by law, oftheattendees. theagreementswillbereachedby absolutemajority isotherwiseestablished intheseregulations andincircumstances Except for thecaseswherequorum the agendapermits. aslong instructions toprovide thememberwhowillrepresentthemwithnecessary effort every meeting. attendameetingoftheBoard, cannotpersonally When any oftheBoardmembers theywillmake presentorrepresented attendthe The Boardwillbeconsideredvalidwhenatleasthalfofitsmembers 3.2 AGREEMENTS The Boardwilldefine anannual calendarofregularmeetings. the agenda. todiscussthepointson documentationandinformation willbeprovided withthenecessary the members sessions,Along withtherequirementtoattendeachmeetingandaslongitispossible for theextraordinary the Boardmeetingmay becalledwithoutcomplying with thislengthofnotice. circumstancesperceived inwhichcase by thechairman at leastoneday’s noticeexceptfor extraordinary toeachboardmemberwith The routinemeetingswillbecalledby meansaddressedpersonally any written willcallthemeeting. sorequireandthechairman at leasttwo members for thesake ofthecompany.initiative asmany timesasisdeemednecessary The Board willalsomeetwhen willmeetatleastfour timesayear,The BoardofDirectors onceamonthasroutine, andatthechairman’s 3.1 MEETINGS CONSEJO DE ADMINISTRACIÓN INFORME DEGOBIERNO CORPORATIVO PROCEDURES 75 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 2 BOARD MEMBERS

4. BOARD COMMITTEES

4.1 AUDIT COMMITTEE

4.1.1 COMPOSITION, PROCEDURES AND INTERNAL REGULATION

The Audit Committee will be comprised of at least three members appointed among the Board, who will occupy the post for a period of four years. They may be re-elected for the same or less amount of time. The Audit Committee will be made up mainly of non-executives appointed by the Board of Directors. The chairman will be appointed among the non-executive members and must be substituted every four years though the possibility of re-appointment exists one year after vacating office.

The members of the Audit Committee will be relieved of their responsibilities once the period for which they were appointed has expired, of their own volition or by not being re-appointed board member.

The members are subject to maintain secrecy and confidentiality as with the Board members. They will be directly responsible to the Board of Directors. 76 A secretary with the right to speak but without voting rights and who need not be a Board member will assist the Committee. In addition, any member of the management team or company personnel, with the approval of the chairman or chief executive officer is obliged to attend the Committee meetings when requested to do so, and the Committee may also request the attendance of the auditors.

The Committee will meet as many times as they deem necessary but not less than four times a year, coinciding two weeks after each three-month closure of accounts.

The Committee may operate when half of its three members plus one attend. When not all members are present, the rule of unanimous vote instead of majority will apply.

The Committee may regulate its internal conduct to improve its performance and may propose modifications to these regulations to the Board of Directors to be submitted to the Shareholders at the AGM.

4.1.2 OBJECTIVES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE

The activity of the Committee has the following objectives:

• To have unrestricted, direct access to all company financial information. • To have unrestricted, direct access to the external company auditors, holding informative and explanatory meetings as necessary. • To supervise compliance with the audit contract, demanding that the auditor’s opinion on the annual accounts and the contents of the report be written in a clear and precise manner. • To act as a channel between the Board of Directors and the auditors. • To evaluate the results of each audit and the response of the management team to the recommendations made by the auditors.

BOARD MEMBERS • To act as intermediary in case of discrepancies between the management team and the auditors, with reference to the principles and criteria to be applied in preparing the financial statements. • To check the company accounts and ensure that the generally accepted accounting principles are applied correctly. to theseregulationstheBoard ofDirectors. conducttoimproveThe Committeemay andmay regulateitsinternal itsperformance proposemodifications of theagreementsreachedby theCommittee. meetingheldofthecontent atthefirst theBoardofDirectors oftheCommitteewillinform The chairman which must have vote ofthemembers. themajority uptheminutes andtheagreements, willdraw ofthedeliberations, matters transcendental The secretary executive officer, isobliged toattendtheCommitteemeetingwhenrequesteddoso. Any memberofthemanagementteamor thecompany personnel, orchief withapproval of thechairman anditssubsidiaries. ortopmanagementofDuroFelguera of theBoardmembers will allow todecideonannual analysis remunerations, andstudyofconditionsinformation appointments decide.Directors Inany casetheCommitteewillmeetatleasttwiceayear andcoincidingwithdateswhich Boardof decides, ortheDuroFelguera chairman ofthemembers orthemajority whenever thechairman The Committeewillmeetattherequestofitschairman, atthecompany’s registeredoffice orwherethe tospeakbut novoting oftheCommitteewithright rights. willalsobemembers of Directors amount oftimelefttooccupy thepostofCommitteemember. andlegalcounseloftheBoard The secretary offive andinany for aperiod casefor years the willbeappointedamongthemembers The chairman of theBoard. member. aslongtheyarestillmembers may bere-appointedasmany timesasnecessary The members The appointmentwillhave offive asthepostofBoard andinany duration casethesameduration years of theBoardmembers. of Directors, whoarenotexecutives vote oftheBoardandappointedby orexecutive majority members The Committeewillconsistofaminimum ofthreeandamaximum offive people, oftheBoard members 4.2.1 COMPOSITION, PROCEDURES AND INTERNALREGULATION 4.2 COMMITTEEFOR APPOINTMENTS, REMUNERATION AND EXPEDITINGOFSTANDARDS 4.1.3 COMMITTEEMEMBERS • by theBoardofDirectors. Any otherentrusted bodies. andtheirsupervisory to themarkets • To must supply approve financial thattheBoardofDirectors information prospectusesandperiodic the appointmentorsubstitutionofthoseresponsible. • To controlmechanismsandtoproposeorreview anduseofadequateinternal checktheintegrity management andthosestipulatedinlaw. • To suggestedby the andaccountingprinciples onproposedmodifications inform oncriteria Mr. SecundinoFelguerosoFuentes Mr. JuanGonzalo Alvarez Arrojo Mr. JuanCarlos Torres Inclán Mr. JoséManuel Sirgo Agüera Mr. Marcos Antuña Egocheaga CONSEJO DE ADMINISTRACIÓN INFORME DEGOBIERNO SECRETARY NONMEMBER MEMBER MEMBER MEMBER CHAIRMAN CORPORATIVO 77 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 2 BOARD MEMBERS

4.2.2 FUNCTIONS OF THE COMMITTEE FOR APPOINTMENTS, REMUNERATION AND EXPEDITING OF STANDARDS

The functions of this Committee are:

• To inform and propose for office members of the Board of Directors, to the Board itself to decide by cooption when the need to cover a vacancy on the Board arises, or to the Shareholder’s meeting. • To decide and propose contractual conditions or company agreements with the chairman and the chief executive officer for the Board’s approval. To inform and submit the remunerations of the Board members for approval by the shareholders and also that the Board may approve expenses to attend the Board meetings and Committee meetings. • To inform and submit for the approval of the Board of Directors the selection and appointment of Duro Felguera top level management, i.e. staff management, business line managers and managers of subsidiaries, and remuneration policies, contract conditions, and incentives which take into account results of their area of the company. • To supervise corporate management conduct, transparency of company dealings, compliance with the Internal Code of Conduct by the Board Members and management of the company and to inform the Board of conducts or non-compliance with company codes so they may be corrected or to inform the Shareholders if they are not corrected. 78 • Among its functions, to present any matters it deems necessary before the Board for review and approval.

4.2.3 COMMITTEE MEMBERS

Construcciones Termoracama, S.L. CHAIRMAN Inversiones el Piles, S.L. (Represented by Mr. Ángel Antonio del Valle Suárez) MEMBER Residencial VEGASOL, S.R.L. (Represented by Mr. José Antonio Aguilera Izquierdo) MEMBER Mr. Guillermo Quirós Pintado SECRETARY NON MEMBER Mr. Agustín Tomé Fernández LEGAL ADVISOR NON MEMBER BOARD MEMBERS 4.3.1 COMPOSITION, PROCEDURES AND INTERNALREGULATION 4.3 CONTRACTS COMMITTEE requested. asfor whenso theDirectors,rules theBoardofDirectors beingcompelledtodirectly inform Committeewillbesubjecttothesamesecrecyandconfidentiality oftheContracts The members of Directors. Board, but theyshallnotberelieved agreementoftheBoard oftheirpositionexceptby majority for whichtheyhave beenappointed, oftheirown volition orduetonon-renewalofoffice onthe ofthe term Committeewillceasetoactassuchfollowing oftheContracts theexpiry The members notattend,members thanby decisionswillbe taken unanimouslymajority. rather the committeewillrequirepresenceofatleasttwo ofitsmembers. Shouldthetotalityofits The Committeewillalways vote decideby ofitsmembers. majority To beconsideredvalidly constituted appointed.suitability ofthepersons oftheCommittee. willnotbepart The technicalpersonnel of thecompany,to beagreedby consensuswiththeChairman whowillultimately decideonthe by thisCommittee. deemednecessary personnel willhave The appointmentoftechnicalpersonnel do so. Likewise, theCommitteecanalsobeassisted, withexclusive dedication, by thetechnical Technicians oftheCompany willalsobeable toattendthemeetingsiftheyhave beenrequiredto isatthetime. of Directors and theSecretary, also withvoice but withoutvote, willbewhoever the oftheBoard Vice-secretary towhomever atthetimeisLegal appointment corresponding Advisor oftheBoardDirectors, also beappointedfor theabove mentionedCommittee, withvoice but withoutvote, hisorher Among theaforementioned members, theCommitteewillchooseaChairman. A Legal Advisor will for thesamelengthoftimeastheirdirectorship. of Directors oftheBoard,The Committeewillconsistofthreemembers whowillbedesignatedby theBoard CONSEJO DE ADMINISTRACIÓN INFORME DEGOBIERNO CORPORATIVO 79 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 2 BOARD MEMBERS

4.3.2 FUNCTIONS OF THE INTER-GROUP OPERATIONS COMMITTEE

In relation to all the contracts, from the bidding phase to absolute conclusion, of Duro Felguera, S. A., with its managers and connected persons in the terms of Art. 127 3rd of Company Law, as well as with its major shareholders, whether it be via order intakes carried out directly by the Company or indirectly via any subsidiary or because the Administrator or connected persons participate in any form, such as a Joint Venture, consortium, etc, or by means of any title, in the following events:

1) Contracts whose amount exceeds 200,000 euros. The Committee is entitled to:

a) Establish the terms for the presentation of proposals by third parties and the mode and form of publicising and/or inviting to participate in those contracts; b) Modify the request for tender specifications; c) To the open the closed and sealed offers which will have to contain the contracting conditions thereof; d) Decide on the formalisation of these contracts, being able to request whatever technical help is deemed necessary to decide on whether to subscribe to them; e) Establish the contents of the contract, supervise its development, execution and exact observance until the guarantee terms expire; 80 f) Decide on the modifications, extensions or renovations of the contracts, and if the extension, modification or renovation exceeds 200,000 euros, it will have to put to tender the extension, modification or renovation, unless, this were not deemed favourable to the Company’s interests in which case it will issue a motivated report to the Board of Directors, who will have the final decision.

2) Contracts whose amount does not exceed 200,000 euros. The Committee will be entitled to verify that the criteria followed to grant these contracts are in keeping with market prices, and if otherwise, to propose the adoption of the remedies needed to the Board of Directors.

4.3.3 MEMBERS OF THE COMMITTEE

Inversiones El Piles, S.R.L. CHAIRMAN (Represented by Mr. Ángel Antonio del Valle Suárez) Construcciones Urbanas del Principado, S.R.L. MEMBER (Represented by Mr. Juan Sierra Villa) Mr. José Manuel Agüera Sirgo MEMBER Mr. Secundino Felgueroso Fuentes SECRETARY NON-MEMBER Mr. Agustín Tomé Fernández LEGAL ADVISOR NON-MEMBER BOARD MEMBERS 3 2. 1. 2.2 MEMBERS involved. delivered, component, payment therisk-country conditions andwhetheranewfield ofactionis theirvolume,considering theconditions underwhichtheyaretobeexecuted, tobe theguarantees may have contracts for terms, thecompany In general thatcertain thisCommittee analyses therisk 2.1 FUNCTIONS 1.2 MEMBERS general. possibility ofnewbusiness, inprojectexecution andany relevantincidencesin deviationsoccurring ofthecompany.analyses theperformance ofprojectprogress,The Committeeisinformed the This Committee, ofeachlinecompany business, andthedirectors madeupofexecutive directors 1.1 FUNCTIONS sufficiently relevantastobeincludedinthisreport. incompanyareconsidered, businessanalysis developments whencontracts andrisk importance theyare Although theManagementCommitteeandRiskarenotBoardcommittees, given their Legal Management Financial Management Mr. del FlorentinoFernández Valle Mr. JuanCarlos Torres Inclán Mr. FélixGarcía Valdés Mr. deCastilla Morales Martín Francisco Mr. BlancDíaz Mariano Mr. Ángel Antonio del Valle Suárez Mr. Acebal Antonio Martínez Mr. del FlorentinoFernández Valle Mr. JuanCarlos Torres Inclán CORPORATE GOVERNANCE MANAGEMENT WORK COMMITTEES MANAGEMENT COMMITTEE ADVISOR ADVISOR CORPORATE GENERALMANAGER CHAIRMAN INDUSTRIAL PLANTSLINEMANAGER POWER SYSTEMSLINEMANAGER CHIEF FINANCIALOFFICER INVESTMENTS GENERALMANAGER ACQUISITIONS AND TO CHAIRMAN GENERAL MANAGER ASSISTANT CORPORATE GENERALMANAGER CHAIRMAN RISK COMMITTEE REPORT 81 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 4 CONNECTED OPERATIONS

The major shareholders of the company have carried out significant business operations with the company in terms of supplies and services, in free competition with other companies that are not connected to Duro Felguera, S. A. share capital and its subsidiaries, and at market price.

All transactions are analysed and approved by the Board of Directors without the major shareholder’s involvement in the voting and decision making process.

The final sum of the transaction and the type of operation is communicated to the Stock Exchange Commission.

The global sum of all the operations undertaken in the year 2007 has been as follows:

Thousand euros TSK, Electrónica y Electricidad, S. A. 12,629.05 ARSIDE, C.M. (Grupo Cartera I. MELCA) 48.02 PHB Weserhütte, S. A. 5.20 METALNET 0.50

The purpose of the Contracts Committee is to intervene in all those contracts signed by the Company 82 either directly or via its subsidiaries with its administrators and connected persons under the terms of Art. 127 3rd of the Company Law, as well as with any major shareholder.

CORPORATE GOVERNANCE REPORT 5 INTER-GROUP OPERATIONS Duro Felguera, S. A., is made up of a group of companies whose activities are frequently complementary and therefore business development benefits from the activities of the different subsidiaries, which taken as a whole can offer a more complete integrated service their customers.

Page 168 of the economic financial report contains the breakdown of the transactions carried out during the year 2007 with the companies of the group and its associates, whether with a direct or indirect shareholding

MANAGEMENT WORK COMMITTEES by Duro Felguera, S. A., as well as the results as at 31 December 2007. All inter-group operations are as per standard company practices being carried out under ordinary market conditions, and are subject to elimination when the consolidated information is processed; including the financial operations managed in a centralised way through the head office, and other general staff services. 6 1. will bepublished atleasttwo weeks before the Meetingdate. Annual General the Company's registeredoffice five days afterthemeetingisannounced. announcement The supplementary announcement toincludeone or morepointsontheagenda. This must beofficially sentandreceived at whorepresentatleastfive percentoftheshare capitalmayShareholders requestanadditiontothe afterthefirst. which must beatleasttwenty-four hours day whenthemeetingmaywill statethefirst beheldandtheagenda. A seconddatemay alsobeproposed withgreatercirculationatleastonemonthbefore theday itistobeheld.newspapers The announcement Oficial delRegistroMercantil(TheOfficial BulletinoftheCompany Register)andinoneofthe provincial andwillbeannouncedintheBoletín Meetingswillbeagreedby theBoardofDirectors The dateofGeneral 1.4. ANNOUNCEMENT AND PUBLICITY Any willbeconsidered Extraordinary. meetingnotincludedintheabove paragraph company. is thecase, decideonhow the resultswillbeapplied, andtodiscussagreeonany matteraffecting the semesterofthefinancial year,first todiscussmanagement, approve the accountsofthepreviousyear, ifsuch withinthe Meetingwillbeheldontheday designatedby General theBoardofDirectors The Ordinary andExtraordinary. Meetingsmay beOrdinary The General 1.3 ORDINARY AND EXTRAORDINARY GENERALMEETINGS by provisions intheLeydeSociedades Anónimas. 105.3ofLeydeSociedades Anónimas (Company Law).avoteArticle willbegoverned Sharesnotcarrying areconcerned,As farasfractions thesemay tovote begroupedtoexercise inaccordancewith theright shareholders’The attendeesatthegeneral meetingwillhave onevote pershareowned orrepresented. 1.2 RIGHT TO VOTE toattendwhichwillincludeindicationsprovided bythe right Law orby thecompany by-laws. To meeting, attendthegeneral cardwillbegiven onrequesttoeachshareholderwhohas apersonalised together toattendanddesignatearepresentative whomust beashareholder. may group whodonotpossess thenumber ofsharesmentionedabove paragraph Shareholders inthefirst representationtoattendonany toattendmay othershareholder.Any grant shareholderwhohastheright Anónimas (Company Law). willbeinaccordancewithLeydeSociedades meetingsanddelegationofrights toattendthegeneral The right ofsharesatleastfiveownership daysmeetingwillhave beforetoattend. thedateofgeneral theright ofatleasttwo hundredandfifty (250)sharesandwhoaccordingtoLawShareholders have demonstrated 1.1 RIGHT TO ATTEND inaccordancewithlaw.appointed by theBoardofDirectors The Shareholders’ Meeting willbeheldatthecompany’sAnnual General registeredoffice orataplace ofreply asprovidedprejudice totherights by law. even decisionstaken, for thosewhodonotattendandagreewiththemajority mandatory without is theultimategoverning bodyofthecompany andrepresents alloftheshareholders. Itsagreementsare The Shareholders’ Meeting,Annual General called andconstitutedaccordingtolaw andcompany by-laws, ANNUAL GENERALMEETINGOFSHAREHOLDERS (AGM) GENERAL MEETINGREGULATIONS CORPORATE GOVERNANCE REPORT 83 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 6 ANNUAL GENERAL MEETING OF SHAREHOLDERS (AGM)

1.5 SHAREHOLDER’S RIGHT TO INFORMATION All shareholders may request in writing before the date of the meeting or verbally during the meeting any reports or clarifications as necessary on the matters included in the agenda. The Board is obliged to provide information except in those cases where the chairman considers that publishing of certain data may harm the company’s interests. This exception will not be applicable when shareholders representing at least a quarter of the share capital support the request. In the case of the Ordinary General Meeting and in other cases established by Law, the announcement of the meeting will indicate what documents are to be submitted for approval of the shareholders and which are available to be examined and can be obtained immediately and freely at the company’s registered office and, the report or reports legally foreseen, if such is the case.

1.6 REQUIREMENTS OF THE AGM The Shareholders’ General Meeting will be considered valid and will come to agreements which will oblige all shareholders, including those absent, those who abstain or dissidents when the minimum share capital is represented for each case according to the revised text of Company Law, on both the first and second dates set for the meeting, and in accordance with items on the agenda.

1.7 CHAIRMAN AND SECRETARY OF THE AGM The Chairman and Secretary of the Shareholders’ General Meeting will be the same as those of the Board of Directors, or the Vice-Chairman, and in their stead those designated by the Shareholders’ General Meeting itself, proposed by the Board of Directors. The role of the Chairman is to conduct the deliberations, deal 84 with any doubts arising from the list of shareholders and the agenda, determine turns of discussion where he can place time limits on each speaker, and close the debates when he considers that sufficient time has been spent on any given matter, and in general, all the powers required to organise and lead the Shareholders’ General Meeting. It is the secretary’s role to draw up the attendance list, the minutes of the Shareholders’ General Meeting as well as other activities related to the above. Certification of agreements is the role of the secretary or vice-secretary of the Board of Directors with the approval of the chairman or vice-chairman. If the minutes of the Shareholders’ General Meeting are drawn up by a notary public, this will be ruled by current law.

1.8 AGREEMENTS OF THE GENERAL MEETING For there to be consensus at the general meetings, be they ordinary or extraordinary, and whether they are on the first or second date proposed, at least half plus one of the votes present or represented must be in favour. Agreements reached when the company absorbs another or other companies, will require an ordinary majority as in the first paragraph of this article. For those cases contemplated in article 103 of the Ley de Sociedades Anónimas, a majority of votes defined therein will be mandatory unless by applying the above paragraphs of this article a larger number of votes is required, then in that case the requirement for larger number of votes established in this article will prevail. ANNUAL GENERAL MEETING OF SHAREHOLDERS the shares. office: MarquésdeSantaCruz, 14, 1º, Oviedo, by of depositingdocumentationprovingAsturias ownership attendancecardswhichmayprovide alsobeprovided thecorresponding by the company atitsregistered deCompensaciónyLiquidación shares atany oftheentitiesbelongingtoServicio Valores, whowill five days before thedateofmeetinghave ofatleasttwo hundredandfifty accreditedownership (250) orby legally empowered whomay attendinperson representationarethosewhoatleast Shareholders 1.12 RIGHT TO REPRESENTATION Proposal andapplicationofthe Year Results. on Annual Report Auditors Accounts for DuroFelguera, S.A. (Consolidated). andfor itssubsidiaries year endingon31December bothfor DuroFelguera, S.A. (Consolidated). andfor itssubsidiaries Annual Report,BalanceSheet, Profit andLoss tothe Accounts andManagementReport,allcorresponding and aremadefreely are: available totheshareholders Meeting, thedocumentstobesubmittedfor approval attheMeetingwhichareentitledtoberequested 144and212oftheLeydeSociedades In compliancewith Anónimas,Articles ontheoccasion oftheGeneral 1.11 SHAREHOLDERS’RIGHTS AT THE MEETING once itisapproved by eitherofthemeansmentionedabove. meeting, andtheotherminority. onerepresentingthemajority The minutes willhave executive force oftwo weeks andtwothe meetingitselforwithinaperiod by representatives thechairman namedatthe inthemannerestablished by applicable standards.support The minutes ofthe AGM may beapproved at and approved by thechairman.as anattachmentsignedby thesecretary The listmay alsobeonelectronic Meetingwillbelistedatthebeginningofminutes orthelistmayAttendees attheGeneral beannexed 1.10 APPROVAL OFMINUTES toeachoftheproposals. the vote corresponding the case, theminutes willreflectvoting modifications expressedby eachoftheattendeesandresult if noneoftheattendeesexpresswishtomodifytheirvote onany oneoftheitems. Ifthiswere not asifeachoftheitemshadbeenvoted onindividually on jointly inwhichcasetheresultwillbeunderstood itemsontheagendatobe voted ofthemeetingmayNevertheless, decidetosubmitvarious thechairman to conductthevoting andhemay behelpedinthistaskby two ormorefreely appointedscrutinizers. Each oftheitemsonagendawillbesubmittedtovote individually. Itistheresponsibilityofchairman 1.9 PROCEDURE TO REACH AGREEMENTS CONSEJO DE ADMINISTRACIÓN INFORME DEGOBIERNO CORPORATIVO 85 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 6 ANNUAL GENERAL MEETING OF SHAREHOLDERS (AGM)

2. INFORMATION ON THE LAST GENERAL MEETINGS

2.1 ORDINARY GENERAL MEETING ON 18 MAY 2006

The attendance quorum was 84.31 % of fully subscribed stocks: a total of 12,542,859 shares present or represented. The results of the voting on the various points on the agenda proposed were as follows:

FIRST. Review and approval, as appropriate, of Duro Felguera, Sociedad Anónima and Duro Felguera, Sociedad Anónima and its subsidiaries (Consolidated) management report and annual accounts (Balance sheet, Profit and Loss Accounts and Annual Report) for the 2005 financial year and proposal on how to apply the year’s results. Votes in favour: 12,505,605 Abstentions: 37,254 Votes against: 0 SECOND. Approval of management by the Board of Directors during the year 2005. Votes in favour: 12,505,605 Abstentions: 37,254 Votes against: 0 86 THIRD. Reduction of nominal share value from three euros to fifty cents, with no modification to company’s equity with the consequent share issue representative of values in circulation, and modification of the fifth article in the Company By-Laws. Votes in favour: 12,539,524 Abstentions: 591 Votes against: 37,254 FOURTH. Stock issue charged to voluntary reserves and consequent modification of the fifth article of the Company By-Laws which refers to company’s equity; request that new shares be negotiated on the official markets and delegation of authority on the Board of Directors in relation to stock increase. Votes in favour: 12,539,524 Abstentions: 591 Votes against: 2,744 FIFTH. Modification to the Company By-Laws to regulate rights to attend the AGM by requiring possession of a minimum number of shares - article 10 - and to adapt times and manner in announcing the AGM to the new amendment in article 97 of Company Law (Ley de Sociedades Anónimas. Disposición Final Primera. Ley 19/2005, article 13). Consequently,

ANNUAL GENERAL MEETING OF SHAREHOLDERS articles 13 and 5 related to Regulation of the AGM would be modified. Votes in favour: 12,538,824 Abstentions: 591 Votes against: 3,444 SIXTH. To delegate on the Board of Directors for them to draw up the amended text of the Company By-Laws. Votes in favour: 12,505,405 Abstentions: 37,454 Votes against: 0 SEVENTH. The AGM is informed of the modification to the Board’s Internal Regulations by adding article 14 bis referring to the set up of a Contracts Committee. There is no legal necessity to submit this point to the AGM’s approval yet the Board must inform the shareholders and therefore no voting was carried out on this point. The results of the voting on the various pointsontheagendaproposedwereThe resultsofthevoting asfollows: onthevarious stocks. which representssixtyeightpointninesixpercent(68.96%)offully subscribed 66,567,416 sharespresentand3,782,072representedmakingatotalsumof70,349,488shares, thenumberwere ofsharespresentorrepresentedwithvoting counted; rights Firstly attending were 2.2 ORDINARY GENERALMEETINGON3MAY 2007 Chairman, the Secretary of the Board of Directors andits oftheBoardDirectors Chairman, theSecretary Vice-secretary. communications andnotification tothecompetentauthorities, indistinctly infavour oftheCompany depositofthe Annualmandatory Accounts, andtomake thenecessary the Reports Auditors TWELFTH. orexecute outthe toformalise agreementsreached; Delegationofpowers tocarry each sharepresentorrepresented). ELEVENTH. Proposalofbonus payment for attendanceorrepresentationatthe AGM. (0.02for (Texto RefundidodelaLeySociedades Anónimas). TENTH. must bespecified, given thereby atthe substitutingtheauthorisation AGM heldon25May 2005. maximum number ofshares, oftheauthorisation maximum andduration and minimum purchaseprices concordantes del Texto RefundidodelaLeySociedades Anónimas), statingthatmodeofacquisition, 75ofCompany Law (Disposición y inaccordancewitharticle Adicional Primera or itssubsidiaries NINTH. EIGHTH. Legal Reserves.- On thispoint, wereoftheproposalonhow informed toapply theyear’s theshareholders results accounts (Balancesheet, Profit andLoss forAccounts andthe 2006 financial year.Annual Report) Felguera, andannual Sociedad (Consolidated)management report Anónima anditssubsidiaries FIRST. the AGM would be0.167eurosgrossper share. gross pershare. Therefore, incaseof approval at thetotaldividendtobepaid theshareholders financial year results, dividend of0.067euros i.e. 0.01eurosgrosspershareandacomplementary In addition, itwasproposedthatthe AGM tothe2006 the dividendstobepaidoutcharged ratify Dividend.- Remaining.- Voluntary Reserve.- Review andapproval, asappropriate, ofDuroFelguera, Sociedad Anónima andDuro Proposal or re-election of the Auditors in accordance with article 204ofCompany Law Proposalorre-electionofthe inaccordancewitharticle Auditors toacquireCompany sharesby thecompany for theBoardofDirectors Authorisation Participation of the Company in constituting or participating infoundations. oftheCompany inconstitutingorparticipating Participation Votes against: Abstentions: Votes infavour: Votes against: Abstentions: Votes infavour: Votes against: Abstentions: Votes infavour: Votes against: Abstentions: Votes infavour: Votes against: Abstentions: Votes infavour: 17,037 220 7,600 2,762 thousand euros thousand euros thousand euros thousand euros 0 2,944 12,539,915 491 2,944 12,539,324 0 37,954 12,505,405 0 37,954 12,504,905 0 37,954 12,504,905 CONSEJO DE ADMINISTRACIÓN INFORME DEGOBIERNO CORPORATIVO 87 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 6 ANNUAL GENERAL MEETING OF SHAREHOLDERS (AGM)

The results of the voting were as follows: Votes in favour: 70,349,428 Abstentions: 60 Votes against: 0 SECOND. Approval of management by the Board of Directors during the year 2006. Votes in favour: 70,349,428 Abstentions: 60 Votes against: 0 THIRD. Decision on the number of members on the Board of Directors within the limits set out in article 20 of the Company By-Laws and consequent ratification, retirement or appointment of Board members. The AGM was informed of resignations presented by the Company Board members TSK ELECTRÓNICA Y ELECTRICIDAD, S.A. and PHB WESERHÜTTE, S.A. during the previous month of April and therefore the Board of Directors by nine votes to one, in accordance with article 20 of the Company By-Laws decided to suppress the vacancies produced and to reduce the number of members on the Board of Directors to ten. Votes in favour: 41,185,890 Abstentions : 10,218,780 Votes against : 18,944,818 FOURTH. Request made to the AGM to authorise the Board of Directors to decide, on one 88 or various occasions, the increase of company’s equity, deciding upon a increase in share capital with bonus issue and consequent modification of article 5 of the Company By-Laws referring to capital, under the terms and within the limits set out in article 153 of Company Law (Ley de Sociedades Anónimas) and authorisation to request that the new shares issued be admitted for negotiation on the official markets. This proposal was made so that Duro Felguera would have a finance mechanism using its own available resources which would enable the company to deal with needs for finance with greater speed and flexibility that may arise in executing its Strategy Plan, which includes investments inherent to company growth and in possible acquisitions. In parallel, the possibility to issue new share capital would allow Duro Felguera to maintain an adequate balance between debt levels and its capacity to finance new investment opportunities that may arise in the future. And so it was proposed to the AGM that the Board of Directors, in the most ample and efficient manner possible according to Law and using the authorisation set out in article 153.1.b) of the current Company Law (Ley de Sociedades Anónimas), could, within the maximum time limit of two years as from the date of the AGM and without any additional need to call a meeting nor for posterior agreement by the AGM, agree upon, in one or various ANNUAL GENERAL MEETING OF SHAREHOLDERS occasions, when the Board of Directors itself so considered necessary or convenient, the increase of share capital up to a maximum of half of the already existing share capital of the company to date should authorisation be given (that is to say the amount of 25,504,150.00) issuing and placing in circulation new ordinary shares, including the bonus issue, fixed or variable, with preferential subscription rights for those who are already shareholders on the date that share capital is to be increased, and in any case with reimbursement by monetary provision of the increase or increases in share capital agreed by virtue of this authorisation, foreseeing expressly the possibility of incomplete subscription of the shares issued in accordance with article 161.1 of the aforementioned Law. The rights to preferential subscription of the new shares may be exercised during a period of fifteen (15) days after the date on which the announcement is made in the official bulletin of the business register (Boletín Oficial del Registro Mercantil (BORME)). The preferential subscription rights may be transmitted via nay of the bodies participating in the Sociedad de Sistemas. of the Company Chairman, the Secretary of the Board of Directors andits of theCompanyBoardDirectors Chairman, theSecretary Vice-secretary. communications andnotification tothecompetentauthorities,necessary indistinctly infavour depositofthe Annualthe mandatory Accounts, andtomake the the Reports Auditors orexecute out toformalise agreementsreached;SEVENTH. Delegationofpowers tocarry 2007 wasmadetothe AGM andthiswasapproved withthefollowing result: Coopers Auditores, Pricewaterhouse The proposaltore-electtheauditors S.L., for theyear Law (Texto RefundidodelaLeySociedades Anónimas). SIXTH. 204ofCompany Appointment orre-electionofthe inaccordancewitharticle Auditors madeby the previous authorisation AGM on18May 2006without effect. of18andaminimum ofeighteenmonthsandamaximum of3, price period leaving the The AGM theBoardtoacquireupamaximum of5%sharecapital for authorised a effect. of theauthorisation, leavingby the thepreviousauthorisation AGM on18May 2006without mode ofacquisition, maximum number ofshares, maximum andduration andminimum prices yconcordantesdel Primera Texto RefundidodelaLeySociedades Anónimas), specifying 75ofCompany Law (Disposición sharesinaccordancewitharticle Adicional subsidiaries FIFTH. subscription via the stock market interconnectionsystem(SistemadeInterconexiónBursátil). viathestockmarket subscription be admittedfor negotiationontheMadrid, andtheir BarcelonaandBilbaostockmarkets In addition, itwasproposedthatthenewsharesissuedato.50 eurosofnominalvalueeach system (SistemadeInterconexiónBursátil). share fromtheyderive. Therefore, interconnection theymay benegotiatedviathestockmarket de Sociedades Anónimas), underthesameconditionsasthosefor willbetransmittable the 158.3ofCompany Law rights, (Ley The preferential subscription inaccordancewitharticle This pointwasapproved by 70,349,488votes infavour, noneagainstandnoabstentions. Authorisation for the Board of Directors toacquirecompany sharesorits for theBoardofDirectors Authorisation Votes against: Abstentions: Votes infavour: Votes against: Abstentions: Votes infavour: Votes against: Abstentions: Votes infavour: 0 60 70,349,428 0 0 70,349,488 10,093 0 70,339,395 CONSEJO DE ADMINISTRACIÓN INFORME DEGOBIERNO CORPORATIVO 89 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 6 ANNUAL GENERAL MEETING OF SHAREHOLDERS (AGM)

3. COSTS ARISING FROM THE LAST SHAREHOLDERS’ GENERAL MEETING

The announcement for the Shareholders Meeting was published in Boletín Oficial del Registro Mercantil (The Official Bulletin of the Company Register) and in the Asturias newspapers: La Nueva España, La Voz de Asturias and El Comercio, as well as the national financial daily newspaper, Expansión.

The expenditure on publication of the announcement came to the sum of 14,142.94 euros.

Publication of the Annual Report, hiring of the conference room to hold the Meeting, audiovisual means and the necessary installation to hold the meeting as well as the attentions bestowed on the Shareholders who attended produced a cost of 49,386.06 euros.

4. INFORMATION MEANS FOR SHAREHOLDERS

The company maintains a shareholder assistance service via the following means of contact:

90 ADDRESS C/ Marqués de Santa Cruz, 14 · 1º 33007 OVIEDO TELEPHONE 900 714 342 E-MAIL [email protected]

It also has a website (www.durofelguera.com) with company information, rules and notifications made to the Stock Exchange Commission.

CORPORATE GOVERNANCE REPORT ANNUAL GENERAL MEETING OF SHAREHOLDERS 7 AUDIT The fees charged in 2007 by PricewaterhouseCoopers Auditores, S.L. for audit services amounted to 313 thousand euros.

The fees charged in 2007 by other companies that use the PricewaterhouseCoopers name for audit services total 57 thousand euros.

Similarly, 15 thousand euros has accrued for audit services rendered by firms other than the Group’s lead auditor PricewaterhouseCoopers. 8 Commission (CNMV). Since theyear 2005, thefollowing relevantevents have beenconveyed totheNational StockExchange 29/03/2006 04/05/2006 18/05/2006 19/05/2006 19/05/2006 22/05/2006 28/06/2006 27/07/2006 09/10/2006 10/10/2006 20/10/2006 03/11/2006 08/11/2006 10/11/2006 24/11/2006 29/11/2006 01/02/2007 28/02/2007 08/03/2007 28/03/2007 29/03/2007 17/04/2007 25/04/2007 03/05/2007 05/06/2007 30/07/2007 10/09/2007 04/11/2007 05/11/2007 05/11/2007 07/11/2007 28/11/2007 DATE REGISTRY Nº 65309 66223 66928 20674 20675 67105 68192 69067 71439 21633 71735 72022 72215 72278 21906 21928 22628 77519 22913 78585 78623 79213 79501 79922 23636 82612 24184 24328 85520 85522 24607 24863

Announcement and agreements of the shareholders meetings Announcement and agreementsoftheshareholders Results preview ofissuingcompanies meetings Announcement andagreements of theshareholders shareholder tothe onDividendsandotherretributions Information shareholder tothe onDividendsandotherretributions Information Splits andcounter-split Agreements by BoardofDirectors Stock Issue Agreements by theBoardofDirectors Results previewofissuingcompanies Increase anddecreaseofsharecapital Presentation by thecompany Other relevantevents Other relevantevents Increase anddecreaseofsharecapital Results previewofissuingcompanies Presentation by thecompany Announcement ofdividendandvoucher payments Presentation by thecompany Results previewofissuingcompanies Announcement ofdividendandvoucher payments meetings Announcement andagreementsoftheshareholders for theyear 2006 Governance Report Corporate Share acquisitionsortransmissions Results previewofissuingcompanies meetings Announcement andagreementsoftheshareholders Announcement ofdividendandvoucher payments Results previewofissuingcompanies Other communications: July and contracts August 2007 Other communications: renovation of Audit Committee Results previewofissuingcompanies Assistant toChairman Other communications: Manager appointmentofGeneral Presentation by thecompany Announcement ofdividendandvoucher payments CORPORATE GOVERNANCE TYPE OFEVENT RELEVANT EVENTS REPORT 91 DURO FELGUERA 07 ANNUAL REPORT CORPORATE GOVERNANCE REPORT 8 RELEVANT EVENTS

DATE REGISTRY Nº TYPE OF EVENT

27/02/2006 64397 Results preview of issuing companies 13/02/2006 64062 Other relevant events 29/11/2005 62465 Changes in the Board and other governing bodies Regulation of the Board of Directors 25/11/2005 62433 Other relevant events 27/10/2005 61751 Results preview of issuing companies 28/07/2005 59916 Results preview of issuing companies 25/05/2005 58219 Changes in the Board and other governing bodies Announcement and agreements of the shareholders meetings 09/05/2005 57465 Announcement and agreements of the shareholders meetings 29/04/2005 57252 Corporate Governance Report 92 26/04/2005 57121 Results preview of issuing companies 25/04/2005 57069 Share acquisitions or transmissions 16/03/2005 56259 Share acquisitions or transmissions 07/03/2005 56101 Share acquisitions or transmissions 01/03/2005 55925 Results preview of issuing companies 22/02/2005 55665 Share acquisitions or transmissions 18/02/2005 55623 Share acquisitions or transmissions 04/02/2005 55371 Other relevant events 18/01/2005 54992 Share acquisitions or transmissions 13/01/2005 54865 Other relevant events RELEVANT EVENTS ECONOMIC AND FINANCIAL INFORMATION 2007

ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT FOR 2007 DURO FELGUERA ANNUAL REPORT10 07 ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

94

DURO FELGUERA, S.A. AND SUBSIDIARIES

ECONOMIC AND FINANTIAL INFORMATION 2007 ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT FOR 2007 1 DURO FELGUERA, S. A. AND SUBSIDIARIES AUDITORS’ REPORT 2 CONSOLIDATED GROUP BALANCE SHEET INCOME STATEMENT STATEMENT OF INCOME AND EXPENSE RECOGNISED IN EQUITY CASH FLOW STATEMENT ACTIVITY AND STRUCTURE OF THE GROUP DIRECTORS’ REPORT 95 DURO FELGUERA 07 ANNUAL REPORT ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

NOTE

Consolidated balance sheet Consolidated income statement Consolidated statement of income and expense recognised in equity Consolidated cash flow statement Notes to the consolidated annual accounts 1 General information 2 Summary of the main accounting policies applied 2.1 Basis of presentation 2.2 Consolidation principles 2.3 Segment reporting 2.4 Foreign currency transactions 2.5 Property, plant and equipment 2.6 Investment properties 96 2.7 Intangible assets 2.8 Impairment of assets 2.9 Investments 2.10 Inventories 2.11 Trade receivables 2.12 Cash and cash equivalents 2.13 Share capital 2.14 Government grants 2.15 Borrowings 2.16 Deferred income tax 2.17 Employee benefits 2.18 Provisions 2.19 Revenue recognition 2.20 Leases

ECONOMIC AND FINANTIAL INFORMATION 2007 2.21 Construction contracts 2.22 Dividend distribution 2.23 Environment 2.24 Short- and long-term balances 2.25 New IFRS and IFRIC interpretations 3 Financial risk management 3.1 Financial risk factors 3.2 Accounting for derivative financial instruments and hedging activities 4 Accounting estimates and judgements 4.1 Critical accounting estimates and judgements 5 Segment reporting 6 Property, plant and equipment 7 Real estate investments NOTE 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 Other information Joint ventures transactions Related-party Commitments Contingencies fromoperations Cash generated Dividends pershare pershare Earnings Income tax Net financial costs Other netgains/(losses) expenses Operating Employee benefit expenses revenues Ordinary Provisions for otherliabilitiesandcharges Obligations relatingtoemployees incometax Deferred Trade andotherpayables Borrowings revenuesDeferred shareholdings Minority dividend Interim andotherreserves Retained earnings Capital Cash andcashequivalents Inventories Trade andotherreceivables financial assets Held-to-maturity Financial instruments Investments inassociates Intangible assets 97 DURO FELGUERA 07 ANNUAL REPORT ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007 AND 2006 (Thousand euros)

ASSETS Notes 2007 2006 Property, plant and equipment 6 101,766 97,149 Real estate investments 7 12,562 9,225 Goodwill - 156 177 Intangible assets 8 1,233 1,491 Investments in associates 9 1,107 3,224 Held-to-maturity financial assets 11 4,078 3,853 Available-for-sale financial assets 10 362 355 Trade and other receivables 12 1,372 688 Deferred tax assets 22 10,478 9,515 98 NON-CURRENT ASSETS 133,114 125,677 Inventories 13 39,796 19,297 Trade and other receivables 12 364,076 248,851 Financial receivables - 759 414 Financial assets at fair value through profit or loss - 52 2,058 Cash and cash equivalents 14 314,032 210,039 CURRENT ASSETS 718,715 480,659 TOTAL ASSETS 851,829 606,336 ECONOMIC AND FINANTIAL INFORMATION 2007 TOTAL LIABILITIES AND EQUITY IN THE PARENT COMPANY EQUITY ATTRIBUTED TO HOLDERSOFEQUITY INSTRUMENTS LIABILITIES Provisions for otherliabilitiesandcharges Obligations inrespectofprovisions for employees incometaxliabilities Current Trade andotherpayables Borrowings NON-CURRENT LIABILITIES Provisions for otherliabilitiesandcharges Obligations inrespectofprovisions for employees taxliabilities Deferred Trade andotherpayables Borrowings DEFERRED REVENUES NET EQUITY shareholdings Minority Less: dividend Interim andotherreserves Retained earnings Cumulative difference translation Share premium Capital CURRENT LIABILITIES The notes on pages 103 to 148 are an integral part oftheseconsolidated annual accounts part The notesonpages 103to148areanintegral Notes 24 23 21 20 24 23 22 21 20 19 18 17 16 15 - - - 851,829 634,010 565,841 151,701 141,889 (7,141) 94,849 51,008 22,126 34,762 54,785 37,349 11,333 2007 3,913 8,509 2,772 1,593 7,345 8,493 9,812 (740) 5 606,336 423,892 386,357 127,350 119,491 (5,101) 18,516 10,052 45,194 27,120 69,412 51,008 2006 7,870 1,097 1,059 7,180 8,931 9,900 7,859 3,913 904 259 99 DURO FELGUERA 07 ANNUAL REPORT ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Thousand euros)

Notes 2007 2006 Ordinary revenues 25 849,660 566,443 Changes in inventories of finished goods and work in progress - 5,213 1,429 Raw materials and consumables - (560,237) (340,371) Employee benefit expenses 26 (110,306) (100,139) Depreciation/amortisation of PPE and intangible assets - (7,195) (7,271) Operating expenses 27 (116,762) (82,117) Other net gains / (losses) 28 (1,209) 1,437 Operating profit 59,164 39,411 100 Net financial costs 29 1,767 254 Gain (loss) on sale of financial instruments - 641 - Share of (loss)/profit of associates - (1,433) 357 Profit before taxes 60,139 40,022 Income tax 30 (15,546) (4,205) Profit for the year 44,593 35,817 Attributable to: Company’s shareholders - 42,474 34,010 Minority shareholdings 18 2,119 1,807 Earnings per share on profit from continuing activities attributable to Company’s shareholders during the year (expressed in Euros per share) - Basic 31 0.42 0.59

ECONOMIC AND FINANTIAL INFORMATION 2007 - Diluted 31 0.42 0.59

The notes on pages 103 to 148 are an integral part of these consolidated annual accounts DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME AND EXPENSE RECOGNISED IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Thousand euros)

Notes 2007 2006

Foreign currency translation differences (999) 4 Net loss recognised directly in equity Profit for the year (999) 4 Total revenues recognised for the year 44,593 35,817 43,594 35,821 Attributable to: - Company’s shareholders 41,475 34,014 - Minority interests 2,119 1,807 101

The notes on pages 103 to 148 are an integral part of these consolidated annual accounts 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

DURO FELGUERA, S.A. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Thousan euros) Year ended 31 December Notes 2007 2006 Cash flows from operating activities Cash generated from operations 33 113,902 155,324 Interest paid (5,154) (1,830) Taxes paid (16,918) (4,289) Net cash generated from/(used in) operating activities 91,830 149,205 Cash flows from investing activities Acquisition of property, plant and equipment 6 (21,555) (6,767) Income from sale of property, plant and equipment 33 8,289 50 102 Acquisition of intangible assets 8 (358) (582) Other movements in PPE and intangible assets - (88) Net movement from additions and disposals of grants for non-current assets 19 (163) 1,232 Other additions to deferred revenues from investing activities 2,261 101 Investments in associates 9 684 (131) Other movements in investing activities (999) - Interest received 10,116 4,661 Net cash generated from/(used in) investing activities (1,725) (1,524) Cash flows from financing activities Revenues from inclusion of minority shareholdings 1,157 - Income from settlement of long-term receivables (684) 5,099 Proceeds from borrowings 34,939 (30,856)

ECONOMIC AND FINANTIAL INFORMATION 2007 Other movements from financing activities (225) (483) Dividends paid to the Company’s shareholders 32 (19,077) (10,113) Dividends paid to minority interests (1,323) (1,600) Payment of account at long term (899) - Net cash generated from/(used in) investing activities 13,888 (37,953) Net (decrease)/increase in cash and cash equivalents Cash and bank overdrafts at the beginning of the year 210,039 100,311 Cash and bank overdrafts at the end of the year 314,032 210,039

The notes on pages 103 to 148 are an integral part of these consolidated annual accounts NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR 2007 AND 2006

1. GENERAL INFORMATION

Duro Felguera, S.A. (the Parent company) was incorporated as a Spanish public limited company ("sociedad anónima") for an indefinite period on 22 April 1900 under the name Sociedad Metalúrgica Duro-Felguera, S.A. On 25 June 1991 its name was changed to Grupo Duro Felguera, S.A. and on 26 April 2001 the current name was adopted. The current registered office of the Parent Company is in Oviedo, calle Marqués de Santa Cruz, 14.

Initially structured as an industrial conglomerate owning and operating different mines, metallurgy installations, shipyards and electrical plants, it underwent a major transformation through the sale of installations and replacement of these activities by construction, manufacturing and capital goods assembly.

In the last decade it has finally reoriented its business towards a variety of diverse activities in which the main component is the execution of turnkey projects on behalf of its customers in major industrial projects in various parts of the world. Together with this activity, Duro Felguera executes specialized service contracts in engineering, assembly and maintenance of capital goods and machinery for heavy industry. Finally, it has manufacturing facilities for major equipment, although the weight of this component has been diminishing over the last few years. 10 3 Duro Felguera undertakes its major projects both through its parent company and in conjunction with specialized subsidiaries. This is due to the fact that during the 80s and the beginning of the 90s Duro Felguera carried out a subsidiarisation project through which it transformed certain divisions through which it was carrying out activities related to the development of engineering, assembly and maintenance of capital goods and machinery for industry into independent legal companies. The incorporation of these investee companies required that Duro Felguera, S.A. make contributions of human, material and financial resources needed for the development of the respective activities and the outlay of the capital established through cash and in-kind contributions, mainly buildings, machinery and production equipment. It also grouped the different investee companies with activities in the capital goods sector into a single industrial sub-group led by a fully consolidated company, Duro Felguera Plantas Industriales, S.A.

For the purposes of preparing the consolidated annual accounts, a group is understood to exist when the parent company has one or more subsidiaries. The principles applied in the preparation of the Group’s consolidated annual accounts are described in note 2.2. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

Set out below is a list containing information on the Group’s subsidiaries, associates and multi-group companies:

% COMPANY INTEREST ADDRESS ACTIVITY Full-consolidated: Duro Felguera Plantas Industriales, S.A. 100% La Felguera Parent company of capital goods and engineering subsidiaries Felguera Melt, S.A. 100% La Felguera Smelting Acervo, S.A. (2) 100% Oviedo Finance Inmobiliaria de Empresas de Langreo, S.A. (2) 100% La Felguera Real estate Forjas y Estampaciones Asturianas, S.A. (2) 100% Llanera Materials for tunnels and mines Felguera Grúas y Almacenaje, S.A. 100% La Felguera Engineering of lifting equipment Felguera Montajes y Mantenimiento, S.A. 100% Langreo Industrial assembly projects Montajes de Maquinaria de Precisión, S.A. 100% Langreo Turbine fitting and maintenance Felguera Revestimientos, S.A. 100% Langreo Refractory linings Técnicas de Entibación, S.A. 100% Llanera Manufacture of shoring materials Felguera Parques y Minas, S.A. 100% La Felguera Engineering of mining equipment Felguera Calderería Pesada, S.A. 100% Gijón Pressurised containers and heavy boiler making Felguera Calderería Pesada Servicios, S.A. (2) 100% Gijón Assembly and design of metallurgical equipment and pressurised containers Felguera Construcciones Mecánicas, S.A. 100% Langreo Manufacture of mechanical equipment Felguera I.H.I., S.A. 60% Madrid Fuel and gas storage equipment Duro Felguera Investment, S.A. 100% Gijón Investment in retail, industrial and service companies, agencies and unrestricted (antigua Duro Felguera Equipos y Montaje, S.A.) (2) mediation in contracts, as well as the management and administration of securities. Turbogeneradores de México, S.A. de C.V. (2) 100% Mexico Turbine fitting and maintenance Duro Metalurgia de México, S.A. de C.V. (1) 100% Mexico Trading and industrial activities relating to capital goods Duro Felguera Power, S.A. de C.V. (2) 100% Mexico Fitting and maintenance of boilers and turbo generators for energy industry Equipamientos Construcciones y Montajes, S.A. de C.V. (1) 100% Mexico Industrial project construction and assembly Operación y Mantenimiento, S.A. (2) 100% Langreo Launch, operation and maintenance of thermal plants Felguera Tecnologías de la Información, S.A. (2) 60% Oviedo Development of management software Proyectos e Ingeniería Pycor, S.A. de C.V. (1) 100% Mexico Engineering Ingeniería Técnica, S.A. de C.V. (1) 100% Mexico Engineering Felguera Rail, S.A. (*) 77.52% Mieres Manufacture and assembly of railway apparatus Turbogeneradores del Perú, S.A.C. 100% Peru Installation of electrical-mechanical equipment in electricity power plants. Pontonas del Musel, S.A. (2) 70% Gijón Shipping Felguera Renovables, S.A. (2) 52% Oviedo Promotion, development, management, operation and maintenance of alternative energy plants. Felguera Biodiesel Gijón, S.A. (2) (**) 61% Gijón Promotion, development, management, operation and maintenance of alternative energy plants. 10 4 Montajes Eléctricos Industriales, S.L. (2) 81.67% Langreo Engineering and fitting of lifting equipment Opemasa Argentina, S.A. (2) 100% Argentina Industrial project construction and assembly Opemasa Andina, Ltda. 100% Chile Industrial project construction and assembly Soluciones Energéticas Argentina, S.A. 65% Argentina Industrial project construction and assembly (*) y (**) Based on the shareholders' agreements and following the IFRS rules, the integration percentages in these Consolidated Annual Accounts have been 100% and 72%, respectively.

Proportionately consolidated: UTE Soto (2) 50% Oviedo Industrial treatments UTE Abbey Etna – S.M. Duro Felguera (2) 48.58% La Felguera Design, supply and fitting of pipeline with advanced rapid change system at Rothrist plant UTE Felguera Fluidos – S.M. Duro Felguera (2) 50% Gijón Water and effluent treatment system for combined cycle power station in Castejón UTE D.F. Plantas Industriales-F. Fluidos (2) 50% Gijón Aboño water plants UTE Felguera TI-Sistemas avanzados de Tecnología (2) 30% Madrid Execution and implementation of an information system to manage shelters for minors UTE Fujitsu España Services-I68 Noroeste-Felguera TI-Dicampus (2) 8,4% Gijón Construction of platform for entertainment and educational services UTE CT San Roque (2) 50% Madrid Civil engineering project for combined cycle power station UTE CT Besós (2) 50% Madrid Civil engineering project for combined cycle power station UTE CT Castejón (2) 50% Gijón Civil engineering project for combined cycle power station UTE Puertollano (2) 50% Langreo Reconstruction of infrastructure and piping UTE Revamping (2) 50% Oviedo Mechanical fitting and painting in revampings of C.I. Repsol Petróleo (La Coruña) UTE As Pontes (2) 65% Langreo Transformation, review and improvements at Puentes de García Rodríguez thermal power plant UTE ATEFERM (2) 33.33% Langreo Supply and fitting of thermal insulation materials at Sagunto regasification plant UTE DF – TR Barranco II (2) 50% Langreo Turnkey supply of Barranco II combined cycle plant UTE CTCC Puentes (2) 50% Langreo Turnkey supply of Puentes combined cycle plant UTE CTCC Barcelona (2) 50% Madrid Construction of Puerto Barcelona combined cycle power plant UTE FIF Tanque 3000 GNL (2) 35.40% Madrid Turnkey construction of a liquefied natural gas storage tank - Barcelona UTE FIF Tanque TK-3001 (2) 35.40% Madrid Turnkey construction of a liquefied natural gas storage tank - Barcelona UTE FIF Tanque FB241 GNL (2) 35.40% Madrid Turnkey construction of a liquefied natural gas storage tank - Barcelona UTE Suministros Ferroviarios 2005 (2) 25% Amurrio Administration of railroad infrastructures UTE Desvíos 2005 (2) 25% Amurrio Administration of railroad infrastructures UTE PTA CT ACECA (2) 50% La Felguera Operation and maintenance of water treatment plants at C.T. ACECA (Toledo) ECONOMIC AND FINANTIAL INFORMATION 2007 UTE Treelogic-FTI-Dispal-Trisquel (UTE Mantenimiento) (2) 13.2% Lugones Preventive and adaptive maintenance of several information systems in diverse technological environments. UTE FMM – MCAV Monfalcone (2) 51% Langreo Supply, prefabricated and fitting of metalics pipe of proyect Desulfuración of the CT Monfalcone UTE Tierra Amarilla (2) 100% Gijón Supply to equipments of constructions to CT Ciclo Simple en Tierra Amarilla UTE Genelba (2) 100% Gijón Supply to equipments of proyect CT Genelba UTE CTCC Besós V (2) 50% Madrid Construction of Sant Adriá de Besós (Barcelona) combined cycle power plant UTE FIF GNL TK – 3002/03 (2) 36.56% Madrid Turnkey construction of a liquefied natural gas storage tank UTE Suministros Ferroviarios 2006 (2) 25% Amurrio Manufacturing materials of road UTE Desvíos 2005 (2) 25% Amurrio Administration of railroad infrastructures UTE Computer Sciences España – Felguera Tecnologías de la 10.69% Siero Technical assistance to support the area of architecture and planning in the management, Información – Treelogic – ChipBip Servicios y Sistemas (2) production and evolution of the new contents for the Internet portals of the Government of Asturias.

Equity consolidated: Sociedad de Servicios Energéticos Iberoamericanos, S.A. (2) 25% Colombia Assembly and maintenance of electricity generation plants Zoreda Internacional, S.A. (2) 40% Gijón Environmental projects Kepler-Mompresa, S.A. de C.V.(2) 50% Mexico Assembly of turbines and civil engineering Secicar, S.A. (2) 17.69% Granada Marketing of fuels Ingeniería de Proyectos Medioambientales, S.A. (2) 50% La Felguera Construction and operation of hydrochloric acid regeneration plants, promotion and sale of regenerated hydrochloric acid and iron oxide MHI-Duro Felguera, S.A. 45% Madrid Engineering, construction and repair of tunnelling machinery. Petróleos Asturianos, S.L. (2) 19.8% Madrid Storage and distribution of oil products

(1) Companies audited by auditors other than the Parent company’s auditor (2) Companies not audited

These consolidated annual accounts were approved by the Board of Directors on 27 February 2008 and will be submitted for the approval of shareholders at the General Meeting to be held on 7 May 2008 and are expected to be approved without any modification. 2. SUMMARY OF THE MAIN ACCOUNTING POLICIES APPLIED

The main accounting policies adopted when preparing these consolidated annual accounts are described below. These policies have been applied consistently to all years presented unless otherwise stated.

2.1. BASIS OF PRESENTATION

The Group’s consolidated annual accounts at 31 December 2007 have been drawn up in accordance with the International Financial Reporting Standards (IFRS) adopted for utilisation in the European Union and approved under European Commission Regulations in force at 31 December 2007.

The preparation of consolidated annual accounts under IFRS requires the use of certain critical accounting estimates. The application of IFRS also requires that management exercise judgement in the process of applying the Company’s accounting policies. Note 4 discloses the areas that require a higher level of judgement or entail greater complexity, and the areas where assumptions and estimates are significant for the consolidated annual accounts.

2.2. CONSOLIDATION PRINCIPLES

a| SUBSIDIARIES 105 Subsidiaries are all entities (including special-purpose companies) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interests. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Note 1 sets out the particulars of the subsidiaries included in the consolidation scope.

The annual accounts/financial statements used in the consolidation process all refer to the financial year ended 31 December.

b| ASSOCIATES

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. When the Group’s shares of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Note 1 sets out the particulars of the associates included in the consolidation scope.

The annual accounts/financial statements used in the consolidation process all refer to the financial year ended 31 December.

c| JOINT VENTURES

A joint venture (“unión temporal de empresas” - UTE) is a system in which entrepreneurs collaborate for 10 6 a specified, fixed or undetermined period to carry out or execute a work of construction, service or supply. The joint venture’s balance sheet and income statement items are included in the shareholder’s balance sheet and income statement on a proportionate basis.

The relevant table contains details of each joint venture consolidated using the proportionate method.

The annual accounts/financial statements used in the consolidation process all refer to the financial year ended 31 December. ECONOMIC AND FINANTIAL INFORMATION 2007 2.4. FOREIGNCURRENCY TRANSACTIONS indifferent economicenvironmentsother segmentsoperating (note5). whichdiffer inaspecificfrom thoseof andreturns economicenvironment subjecttorisks products orservices whichdiffer fromthoseofotherbusiness andreturns segments.to risks segmentaims tosupply A geographical subject theaimofwhichistosupply products orservices A business segmentisagroupofassetsandtransactions 2.3. SEGMENTINFORMATION Set out below are the main changes in the scope of consolidation during 2007: Set outbelow arethemainchangesinscopeofconsolidationduring d| CHANGESINCONSOLIDATION SCOPE Join ventures: Join ventures: in therevaluation reserve. classedasavailable-for-sale itemssuchasequityinstruments monetary financial assetsareincluded inequity ofthefairvaluegainorloss.profit orlossarepresentedaspart Translation differences inrespectofnon- atfairvaluethrough Translation itemssuchasequityinstruments differences inrespectofnon-monetary net investment hedges. recognised intheincomestatement, inequity asqualifyingcashflow exceptwhendeferred hedgesorqualifying are atyear-end assetsandliabilitiesdenominated inforeign currency translation ofmonetary exchange rates dates.at thetransaction and gainsandlossesresultingfrom thesettlementoftransactions Foreigncurrency inforce Transactions usingtheexchangerates tothefunctionalcurrency aretranslated inforeign currency b| TRANSACTIONS AND BALANCES currency. consolidated annual accountsarepresentedineuro, whichistheparentcompany’s functionalandpresentation economic environment («functionalcurrency»). inwhichthecompanyof theprincipal operates The The itemsincludedintheannual accountsofeachtheGroupcompaniesaremeasuredusingcurrency a| FUNCTIONAL AND PRESENTATION CURRENCY The effect ofthesechangesintheconsolidationscopeonequityandresultsisnotsignificant. Group: Group: UTE ComputerSciencesEspaña–FTI Treelogic –Chipbip 2010 Programa UTE Contrato 2006 UTE SuministrosFerroviarios UTE FIF Tanques TK-3002 y TK-3003 GNL UTE FMM-MCAV Monfalcone UTE CTCCBesós V UTE Genelba UTE Tierra Amarilla Opemasa Andina Ltda. Opemasa Argentina, S.A. Industriales,Montajes Eléctricos S.L. BiodieselGijón,Felguera S.A. ADDITIONS UTE Treelogic –ChipBip(UTECarreño) –FTII68Intermark –Kalfrisa UTE DFPlantasIndustriales UTE LíneaHojalatanº3 Green FuelExtremadura, S.A. doBrasil,Duro Felguera Ltda. México,Duro Felguera S.A. deC.V. DISPOSALS 107 DURO FELGUERA 07 ANNUAL REPORT ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

c| GROUP COMPANIES

Results and the financial situation of all Group companies (none of which has the currency of a hyperinflationary economy) whose functional currency differs from the presentation currency are translated to the presentation currency as follows:

(i) The assets and liabilities on each balance sheet presented are translated at the closing exchange rate at the balance sheet date;

(ii) The income and expenses in each income statement are translated at the average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates existing at the transaction dates, in which case income and expenses are translated at the rates on the transaction dates); and

(iii) All resulting exchange differences are recognised as a separate component of equity.

On consolidation, any exchange differences resulting from the translation of a net investment in foreign companies and loans and other instruments in foreign currency designated as hedges of those investments are taken to equity. When sold, such exchange differences are recognised in the income statement as part of the profit or loss on the sale. 10 8 2.5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recognised at cost less depreciation and cumulative impairment losses, except for land, which is presented net of impairment losses.

Historical cost includes expenses directly attributable to purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset only when it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset may be reliably determined. All other repair and maintenance expenses are charged to the income statement in the year in which they are incurred.

Land is not depreciated. The depreciation of other assets is calculated on a straight-line basis to assign cost or the restated amounts to residual values based on the estimated useful lives of the assets in question:

Estimed years ECONOMIC AND FINANTIAL INFORMATION 2007 of useful life

Buildings 7 to 57 Plant and machinery 4 to 33 Fixtures, fittings, tools and equipment 3 to 33 Other non-current assets 3 to 20

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8). 2.6. INVESTMENT PROPERTIES

Investment property consists only of land owned, which is not depreciated, is not occupied by the Group and is held to obtain long-term gains. Investment property is carried at cost.

2.7. INTANGIBLE ASSETS

a| 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 (four years).

Costs associated with developing or maintaining computer software programs are recognised as an expense when incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads.

Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding four years). 109 b| RESEARCH AND DEVELOPMENT COSTS

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs with a finite useful life that have been capitalised are amortised from the commencement of commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years.

2.8. IMPAIRMENT OF ASSETS

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped together at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

2.9. INVESTMENTS

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

a| FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

This category has two sub-categories: financial assets held 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 categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

b| LOANS AND RECEIVABLES

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet (note 2.11).

c| HELD-TO-MATURITY INVESTMENTS

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. 110 This accounts includes investments in Economic Interest Groups (EIGs) from which specific tax advantages are obtained due to the special regime set down in the fifteenth additional provision of the Corporate Income Tax Act and which are mainly engaged in the leasing of assets and are managed by another company, unrelated to the group, that bears the risk and rewards of said activity.

Due to the nature of the investments mentioned above, the results of the same are recorded under “Corporate income tax” in the profit and loss account.

d| AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Investments are initially recognised at cost. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss

ECONOMIC AND FINANTIAL INFORMATION 2007 category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity.

2.10. INVENTORIES

Raw and auxiliary materials and consumable and replacement materials are stated at the lower of their average acquisition cost and their carrying amount.

Finished goods, semi-finished goods and work-in-progress are stated at their average production cost, which includes the cost of raw materials and other materials consumed, labour and direct and indirect manufacturing expenses. The cost of these inventories is written down to their net realisable value if lower than production cost.

Obsolete and defective items are adjusted, based on estimates, to bring them into line with their potential realisable value. 2.11. TRADE RECEIVABLES

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

2.12. CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

2.13. SHARE CAPITAL

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, for 111 the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration.

2.14. GOVERNMENT GRANTS

Grants from the government are recognised at their fair value when there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets.

2.15. BORROWINGS

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost and any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months as from the balance sheet date.

2.16. DEFERRED INCOME TAX

a| CORPORATE INCOME TAX

Corporate income tax expense for the year is calculated based on reported profits before taxes, as increased or decreased for any permanent and/or temporary differences envisaged in tax legislation governing the calculation of the corporate income tax base. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

Tax credits and deductions and the tax effect of applying tax-loss carryforwards that have not been capitalised are treated as a reduction in the corporate income tax expense for the year in which they are applied or offset.

Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests of more than 75% are subject to corporate income tax under the rules governing groups of companies. Accordingly, the assessment base is determined based on the consolidated results of Duro Felguera, S.A. and the aforementioned subsidiaries.

b| DEFERRED INCOME TAX

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 in the consolidated annual accounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

In 2006 Law 35/2007 on Personal Income Tax and partial modification of the Spanish Corporate Income Tax Act, Non-Resident Income Tax Act and Wealth Tax, came into effect, which reduced the 35% rate to 32.5% for the years commencing as from 1 January 2007 and to 30% for years commencing as from 1 January 2008. 112 Accordingly, the Group has adjusted deferred tax assets and liabilities based on their estimated time of reversal with respect to all Spanish companies pertaining to the Group.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Tax credits for research and development are recognised when applied for tax purposes, as the deduction is subject to ministerial approval.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.17. EMPLOYEE BENEFITS

a| COAL VOUCHERS

The Group contracted commitments with certain retired and current personnel, employees of the discontinued coal activity, for the monthly supply of a certain amount of coal. ECONOMIC AND FINANTIAL INFORMATION 2007 The amounts of annual allocations for coal have been determined in accordance with actuarial studies performed by an independent actuary and include the following assumptions; mortality tables PER2000P, technical interest rate of 3.76% per year and consumer price index increases totalling 2.5% per year.

b| LENGTH OF SERVICE AWARDS AND OTHER PERSONNEL OBLIGATIONS

The Collective Bargaining Agreement applicable to certain Group companies provides length-of-service awards for employee remaining in service for 25 and 35 years, as well as other personnel obligations. To measure these obligations, the Group has applied its best estimates based on an actuarial study performed by an independent third party, for which the following assumptions have been applied: mortality table PER2000P and an interest rate of 3.71% per year.

106 c| SEVERANCE BENEFITS

Severance 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 Group 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 that will not be paid within 12 months of the balance sheet date are discounted to their present value.

d| PROFIT-SHARING AND BONUS PLANS

The Group 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 Group recognises a provision where contractually obliged or where there is a past practice that has created an implicit obligation.

2.18. PROVISIONS

Provisions for environmental restoration, restructuring costs and legal claims are recognised when:

(i) The Group has a present legal or constructive obligation as a result of past events; 113

(ii) It is more likely than not that an outflow of resources will be required to settle the obligation; and

(iii) The amount has been reliably estimated.

Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

2.19. REVENUE RECOGNITION

Ordinary revenues comprise the fair value for the sale of goods and services, net of value added tax, rebates and discounts and after eliminating sales within the Group. Ordinary revenues are recognised as follows:

a| SALES OF GOODS

Sales of goods are recognised when a Group entity has delivered products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured.

b| SALES OF SERVICES

Sales of services are recognised in the accounting period in which the services are rendered, by reference to the completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. The same method as that used for construction contracts are applied.

c| INTEREST INCOME

Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

d| DIVIDEND INCOME

Dividend income is recognised when the right to receive payment is established. 2.20. LEASES

a| WHERE A GROUP COMPANY IS THE LESSEE

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are recognised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligation, net of finance charges, is included in long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance lease are depreciated over the lower of their useful lives and the lease period.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the 114 lessor) are charged to the income statement on a straight- line basis over the period of the lease. b| WHERE A GROUP COMPANY IS THE LESSOR

When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable (note 12). The difference between the gross receivable and the present value of the receivable is recognised as a financial return on capital. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Assets leased to third parties under operating lease contracts are included in property, plant and equipment in the balance sheet. These assets are depreciated over their expected useful lives at rates consistent with those applied to similar assets owned by the Group. Lease income is recognised over the term of the lease.

c| SALE AND LEASE-BACK TRANSACTIONS WHERE THE SELLER IS A GROUP COMPANY

When a sale and lease-back transaction results in a finance lease, the immediate recognition of any excess of the selling amount over the carrying amount of the leased asset will be avoided. This amount is deferred and written off over the term of the lease.

ECONOMIC AND FINANTIAL INFORMATION 2007 Where the subsequent arrangement is a finance lease, the lessor has used the transaction to provide financing to the Group company, secured by the asset. Consequently, the excess of the selling amount over the carrying amount of the asset should not be treated as a realised profit. This excess is deferred and written off over the term of the lease.

When a sale and lease-back transaction results in an operating lease and the transaction has clearly been completed at fair value, any profit shall immediately be recognised. In the event that the selling price is lower than the fair value, the loss is recognised immediately, unless it is offset by future instalments below market prices, in which case the loss is deferred and written off in proportion to the instalments paid during the period in which the asset is expected to remain in use. If the selling price is higher than the fair value, the excess is deferred and written off during the period in which the asset is expected to remain in use.

Where the subsequent arrangement is an operating lease, and both the instalments and the price were determined at fair value, an ordinary sale will have effectively taken place and any results will be immediately recognised. In operating lease contracts, if the fair value of the asset at the date of sale and lease-back is lower than its carrying amount, the loss derived from the difference will be immediately recognised.

This adjustment is not necessary in the case of finance leases, however, unless the asset is impaired, in which case the carrying amount is written down to its recoverable amount in accordance with IAS 36.

2.21. CONSTRUCTION CONTRACTS

Contract costs are recognised when incurred.

Where the results of a construction contract cannot be reliably estimated, contract revenues are only recognised up to the limit of contract costs incurred that are likely to be recovered.

Where the results of a construction contract may be reliably estimated and the contract is likely to be profitable, contract revenues are recognised over the term of the contract. Where contract costs are likely to exceed total contract revenues, the expected loss is immediately charged to provisions for construction work as an expense.

The Group applies the percentage-of-completion method to determine an appropriate amount to be recognised in a given period. Percentage of completion is determined by reference to the contract costs incurred on the balance sheet date as a proportion of total costs estimated for each contract. Costs incurred during the year in relation to future activities under the contract are excluded from contract costs when calculating percentage of 115 completion. Such costs are presented as inventories, advance payments and other assets, depending on their nature.

The Group records in assets the gross amount owed by customers under all contracts in progress for which costs incurred plus profits recognised (less recognised losses) exceed progress billing. Progress billing not yet settled by customers and withholdings are included in trade and other receivables.

The Group records in liabilities the gross amount owed to customers under all contracts in progress for which progress billing exceeds costs incurred plus profits recognised (less recognised losses).

2.22. DIVIDEND DISTRIBUTION

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated annual accounts in the period in which the dividends are approved by the Company’s shareholders.

2.23. ENVIRONMENT

Expenses deriving from business actions taken to protect and improve the environment are recorded as an expense in the year incurred. When such expenses lead to additions of property, plant and equipment with the purpose of minimising the environmental impact and improving the environment, they are capitalised as an increase in the value of fixed assets.

2.24. SHORT- AND LONG-TERM BALANCES

Long-term balances under both assets and liabilities are amounts maturing in more than 12 months as from the end of the accounting period. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

2.25. NEW IFRS AND IFRIC INTERPRETATIONS

a| STANDARDS AND MODIFICATIONS AND INTERPRETATIONS OF THE EXISTING STANDARDS THAT HAVE NOT YET COME INTO EFFECT THAT THE GROUP HAS NOT ADOPTED IN ANTICIPATION OF THE SAME

At the date of formulation of these accounts, the IASB has published the interpretations that are set out below. These interpretations are obligatory for all years beginning 1 January 2008, and the years thereafter, although the Group has not adopted them in advance:

- IAS 23 (Revised in March 2007), “Interest costs”, which is obligatory for all years beginning 1 January 2009. This modification is pending adoption by the European Union. This standard requires that entities capitalise the interest costs that are directly attributable to the acquisition, construction or production of a qualified asset (an asset that necessarily requires a substantial period of time before being ready for use or sale) as part of the cost of the asset. The option of immediately recognising these interest costs as expenses for the period is eliminated. The Group will apply the modified IAS 23 as from 1 January 2009 although at this time it is not applicable given that the entity does not have qualified assets.

- IFRS 8 “Operating segments”. This standard must be met for the years beginning 1 January 2009. It is pending adoption by the European Union. IFRS 8 replaces IAS 14 and homogenises the financial segment 116 reporting requirements with the US standard SFAS 131 “Disclosures on segments of an enterprise and related information”. The new standard requires a management focus whereby the segment information is presented on the same basis as that used for internal purposes. The Group will apply IFRS 8 as from 1 January 2009. The impact that it is expected from this standard is still being evaluated in detail by management, although it seems probable that the number of segments on which it will report, and the way in which the information is presented, will be modified in line with the internal reporting that is prepared and provided to the bodies responsible for decision-making. Given that the goodwill is charged to groups of cash generating units at the segment level, the change will also force management to charge the goodwill to the new operating segments that are identified. Management does not expect that there will be impairment losses as a result of this charge.

- IFRIC 14, “IAS 19 – Limit of the assets related to a defined benefits plan, minimum financing needs and relationship between both”, which comes into force for the years beginning 1 January 2008. This interpretation has still not been adopted by the European Union. IFRIC 14 includes the guidelines for evaluating the limit established under IAS 19 on the surplus that can be recognised as assets. It also explains the way in which the asset / liabilities for pensions can be affected by the minimum financing obligations established contractually or legally. The group will apply IFRIC 14 to the years beginning 1 January 2008, although it is not expected that it will have any effect on the group’s accounts.

b| STANDARDS AND MODIFICATIONS AND INTERPRETATIONS OF THE EXISTING STANDARDS

ECONOMIC AND FINANTIAL INFORMATION 2007 THAT HAVE NOT YET COME INTO EFFECT AND WHICH ARE NOT RELEVANT TO THE GROUP’S OPERATIONS

At the date of formulation of these accounts, the IASB has published the interpretations that are set out below. These interpretations are obligatory for all years beginning 1 January 2008, and the years thereafter, and which are not relevant to the group’s activities:

- IFRIC 12, “Service Provision Agreements”, obligatory for the years beginning 1 January 2009. IFRIC 12 applies to contracts in which a private operator participates in the development, financing, operation and maintenance of infrastructure for the public sector.

- IFRIC 13, “Customer Loyalty Programs”, obligatory for the years beginning 1 July 2008. IFRIC 13 clarifies that in cases in which the goods are services are provided in conjunction with a customer loyalty incentive (for example, customer loyalty points or free products), the contract will be considered a multiple-element contract and the amount received or to be received by the customer must be charged to the elements in the contract at their fair value. IFRIC 13 is not applicable to the group’s operations given that none of the group entities has customer loyalty plans. 3. FINANCIAL RISK MANAGEMENT

3.1. FINANCIAL RISK FACTORS

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise the potential adverse effects on the Group’s financial performance. The Group uses, to a limited extent, derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a Risk Committee comprising the Chairman of the Board of Directors and the Corporate General Manager, who are advised by the legal counsel and by Finance Management, under policies approved by the Board of Directors. The Risk Committee identifies and evaluates all types of risks. Financial risks are hedged by Financial Management in close cooperation with the Group’s operating units.

a| MARKET RISK

(i) FOREIGN EXCHANGE RISK

The Group operates internationally and is therefore exposed to foreign exchange risk arising from currency exposures, primarily with respect to the US dollar, although there is also a lesser degree of exposure to local 117 currencies in projects in emerging countries. In the recent past, the most frequent exposures related to the Mexican peso, Venezuelan bolivar, Peruvian sol, the Argentine peso and the Indian rupee. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

To manage their foreign exchange risk arising from future commercial transactions, recognised assets and liabilities, the Group entities use forward contracts. Foreign exchange risk arises when future commercial transactions, recognised assets and liabilities are denominated in a currency that is not the Company’s functional currency. Group Treasury, in close cooperation with the Group’s operating units, is responsible for managing the net position in each foreign currency using external forward currency contracts. Exchange rate risk arises when future business transactions, and recognised assets and liabilities, are denominated in a currency that is not the Company’s functional currency. The operating units are responsible for the decision on the hedges using external forward contracts in foreign currency, for which they can count on the collaboration of Group Treasury.

For reporting purposes, each subsidiary designates contracts with Group Treasury as fair value hedges or cash flow hedges, as appropriate. External foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific assets, liabilities or future transactions, as appropriate.

The Group’s risk management policy is to hedge between 60% and 80% of transactions anticipated in each project for the duration of the project.

The Group currently has significant investments in foreign operations, mainly in Venezuela, Peru, Argentina, Chile and India, whose net assets are exposed to foreign currency translation risk.

b| CREDIT RISK

The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

c| LIQUIDITY RISK

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims to maintain flexibility in funding by keeping committed credit lines available.

d| CASH FLOW INTEREST RATE RISK AND FAIR VALUE RISK

The Group’s interest-rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to the cash flow interest rate risk. This risk is not significant as borrowings do not exceed three years because the funding of the Group’s operations is linked to project working capital needs.

The Group’s exposure to interest-rate fluctuations is not significant as there are no long-term structural borrowings and financial products, including loans, are acquired on the basis of project cash flows. When analysing project budgets, cost calculations take into account potential tolerances in respect of interest-rate fluctuations and significant changes in interest rates are mostly passed on to customers. Borrowings are also sporadic since the terms of payment for the Group’s products usually give rise to advance payments that generate cash surpluses on a number of occasions during each project. 118 Exposure to interest-rate risk is therefore low. 3.2. 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 remeasured 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, on the nature of the item being hedged. The Group designates certain derivatives as either:

(i) Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); (ii) Hedges of forecast transactions (cash flow hedges); or (iii) Hedges of net investments in foreign operations.

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair values or cash flows of hedged items.

ECONOMIC AND FINANTIAL INFORMATION 2007 As explained above, the company ensures that no more than 20% of the value of its contracts remains unhedged. With this aim, a combined technique is applied:

- The highest possible number of contracts are denominated in the project currency, corresponding to the turnover expectation of suppliers in the different currencies.

- The subcontrating of suppliers is orientate in areas in which the currency coincides with the principal of the contract.

- Working capital for each project is funded in the project currency.

- At times derivative financial instruments are acquired for the amount not hedged as described above, in accordance with the following policy: for collections and payments due within three months, foreign exchange fluctuation insurance or forwards are acquired; for transactions to be effected in between three and twelve months, zero-premium tunnels are usually contracted. a| FAIR VALUE HEDGE

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.

b| CASH FLOW HEDGES

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Amounts accumulated in equity are recycled in the income statement in the period 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, inventories) 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 a hedging instrument matures or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in net equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. However, when a forecast 119 transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

c| NET INVESTMENT HEDGE

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.

d| DERIVATIVES THAT DO NOT QUALIFY FOR HEDGE ACCOUNTING

Certain derivative instruments may not qualify for hedge accounting. Should this be the case, changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.

At the date these accounts were prepared, Duro Felguera Plantas Industriales has contracted put for USD 5 million maturing on 15 December 2009 at the exchange rate of 1.47 USD/Euro. At the same time it has sold a call for the sale amount in USD and maturing at the same date at an exchange rate of 1.40 USD/Euro.

Apart from these the Duro Felguera Group has no other derivatives.

4. ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

4.1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group makes estimates and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

a| WARRANTY CLAIMS

The Group offers 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 historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims.

Factors that could impact the estimated claim information include the Group’s experience, the quality of project execution and the counter-guarantees for work performed by collaborating companies.

b| LEGAL CLAIMS

The Group records the necessary provisions, on the basis of estimates made by its legal advisors, for foreseeable 120 cash outflows that could arise from legal claims, which are updated where more than one year is expected to elapse.

c| RECOVERABILITY OF DEFERRED TAX ASSETS

Management assesses the recoverability of deferred tax assets based on estimates of future tax profits, analysing whether they will be sufficient in the periods during which such deferred tax assets may be deducted. In their assessment, management take into account the forecast reversal of deferred tax liabilities, projected tax results and tax planning strategies. Deferred tax assets are recorded when their future recoverability is probable. Management considers that the recoverability of the deferred tax assets recorded by the Group is probable. Nonetheless, estimates may change in the future as a result of changes in tax legislation or the impact of future transactions on tax balances.

Although these estimates were made by management using the best information available at the year end, on the basis of their best estimates and market knowledge, possible future events may require that the group change them in subsequent years. In accordance with IAS 8, the effects of changes in estimates will be recognised prospectively in the consolidated income statement.

5. SEGMENT REPORTING ECONOMIC AND FINANTIAL INFORMATION 2007 The Group has evolved in recent years from a typically industrial, manufacturing business to one based mainly on services and has progressively sold its manufacturing assets.

The remaining manufacturing assets form the business segment referred to as Manufacturing, consisting of five factories. This business operates in the railway sector, manufacturing equipment for tunnels, pressure tanks, heavy cauldrons and equipment for research laboratories.

A second business segment comprises ancillary services for industry. These include detail engineering, fitting, operation and maintenance of industrial plants.

However, the majority of the Group’s activities are concentrated in the segment referred to as turnkey project management and supply. The Group’s products integrate basic engineering, detail engineering, civil engineering, equipment supply, assembly, commissioning and financing of complex facilities. The main projects undertaken in this business segment entail the construction of power plants, mineral fleet facilities and fuel storage. Despite the diversity of the Group’s specialised areas, the types of returns and risks are similar in projects of this kind.

The Group has the capacity to operate internationally and, in fact, some of its contracts relate to foreign projects. Nonetheless, in 2007, particularly, a high percentage of the Group’s activities took place in Spain and no other geographical area was sufficiently significant or generated different risks to require separate treatment from the activities carried out in Spain. Consequently, no information is provided on secondary geographical segments.

Segment-level results for the year ended 31 December 2006 are as follows:

Thousand euros Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Total gross segment sales 419,564 79,636 98,494 11,239 608,933 Inter-segment sales (1,779) (30,582) (4,715) (5,414) (42,490) Sales 417,785 49,054 93,779 5,825 566,443 121

Amort/Deprec. (2,511) (263) (4,277) (220) (7,271) Operating results 33,013 10,792 4,479 (8,873) 39,411 Exchange differences (2,170) 2 (66) (343) (2,577) EBITDA 33,354 11,057 8,690 (8,996) 44,105

Segment-level results for the year ended 31 December 2007 are as follows:

Thousand euros Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Total gross segment sales 683,895 118,306 111,624 7,811 921,636 Inter-segment sales (146) (58,845) (5,433) (7,552) (71,976) Sales 683,749 59,461 106,191 259 849,660

Amort/Deprec. (2,411) (377) (3,999) (408) (7,195) Operating results 39,848 12,734 14,272 (7,690) 59,164 Exchange differences (2,781) (82) (85) (247) (3,195) EBITDA 39,478 13,029 18,186 (7,529) 63,164

Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

The segment assets and liabilities at 31 December 2006 and capital expenditure for the year then ended are as follows:

Thousand euros Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Assets 357,081 46,678 140,838 61,739 606,336 Liabilities 335,090 41,390 91,737 10,769 478,986 Capital expenditure 680 1,534 4,191 944 7,349

The segment assets and liabilities at 31 December 2007 and capital expenditure for the year then ended are as follows:

Thousand euros 122 Integrated Manufacture project Ancillary of capital management services goods Unallocated Group Assets 612,867 72,344 159,130 7,488 851,829 Liabilities 531,281 66,140 99,490 3,217 700,128 Capital expenditure 564 787 1,713 15,092 18,156

Segment assets mainly include property, plant and equipment, intangible assets, inventories, accounts receivable and operations cash. They exclude deferred taxation.

Segment liabilities comprise operating liabilities and exclude items such as taxation and corporate borrowings and related hedging derivatives.

Capital expenditure comprises additions to property, plant and equipment (note 6) and intangible assets (note 8). ECONOMIC AND FINANTIAL INFORMATION 2007 Set outbelow isabreakdown ofproperty, plantandequipmentshowing movements 2004and2006: during 6. PROPERTY, PLANTANDEQUIPMENT 2006 Closing balance Opening balance CARRYING AMOUNT Closing balance Other Transfers Disposals Appropriations Opening balance DEPRECIATION Closing balance Other Transfers Disposals Additions Opening balance COST Land and buildings (1,039) (6,953) (8,020) 68,743 68,174 60,723 61,221 (73) (28) 175 464 3 - - (23,948) (19,842) machinery Plant and (3,910) 27,649 27,370 51,597 47,212 3,772 (196) 575 (9) 47 - - fittings, tools equipment (8,632) (7,792) 13,804 13,465 Fixtures, 5,172 5,673 (990) (166) and 106 507 Thousand euros (2) 44 - - construction account and on 1.005 (250) (164) Under 983 392 983 392 ------current assets current Other non- (3,652) (3,666) 2,622 2,299 6,274 1,019 5,965 (542) (334) (376) 180 376 - - (44,252) (38,253) 141,401 135,208 (6,481) 97,149 96,955 Total 6,767 (624) 106 376 50 - - 123 DURO FELGUERA 07 ANNUAL REPORT ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

2007 Thousand euros Fixtures, Under fittings, tools construction Land and Plant and and and on Other non- buildings machinery equipment account current assets Total COST Opening balance 68,743 51,597 13,804 983 6,274 141,401 Additions 10,325 785 638 4,966 1,084 17,798 Disposals (6,493) (35) (86) (11) (166) (6,791) Transfers (20,580) 21,419 23 (840) (44) (22) Closing balance 51,995 73,766 14,379 5,098 7,148 152,386 DEPRECIATION Opening balance (8,020) (23,948) (8,632) - (3,652) (44,252) Appropriations (737) (4,252) (965) - (644) (6,598) 124 Disposals - 35 59 - 106 200 Transfers 5,180 (4,645) 25 - (530) 30 Closing balance (3,577) (32,810) (9,513) - (4,720) (50,620) CARRYING AMOUNT Opening balance 60,723 27,649 5,172 983 2,622 97,149 Closing balance 48,418 40,956 4,866 5,098 2,428 101,766

a| Fixed assets under construction in 2007 includes approximately Euros 4,216 thousand for the costs incurred to date of a total expected amount of Euros 10,400 thousand relating to a turnkey contract that the parent company has been awarded for the construction of the “New Centre for Engineering, R+D+I, Quality and Development of Industrial Plants and Equipment” that Duro Felguera, S.A. is building on municipal lot no. 23 in the Scientific and Technological Estate of Gijón, acquired last year for Euros 786 thousand from the City Council of Gijón. ECONOMIC AND FINANTIAL INFORMATION 2007 b| OWN WORK CAPITALISED

In 2007 the Company capitalised labour costs and sundry supplies in respect of work performed on its own PPE totalling 579 thousand (2006: Euros 746 thousand in) (note 28).

c| PROPERTY, PLANT AND EQUIPMENT SUBJECT TO GUARANTEES

Mortgage debts totalling 6,909 thousand (2006: 3,785 thousand) are secured by property, plant and equipment.

d| INSURANCE

The consolidated Group 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. Set out below is an analysis of investment property showing movementsSet outbelow isananalysis in2006and2007: ofinvestment property 7. REALESTATEINVESTMENTS Net bookvalue Accumulated depreciation Capitalised finance leasecost Financial cost Buildings Land Net bookvalue Accumulated depreciation Capitalised finance leasecost At theendof year sold Property Additions At thebeginningofyear Land, andotherPPEincludethefollowing finance leasesinwhichtheGroupislessee: machinery e| FINANCELEASES thousand). Lease incometotalling5,107thousandwasrecognisedinthe come statementin2007(2006: 4,759 leases: underoperating Plant includestwo facilitiesleasedtothirdparties LEASES f| OPERATING hasthefollowingThis finance leaseoperations maincosts: S.A. planstoexercise thepurchaseoptionofEuros1,447,500. S.A. owner). (former ofthisfinance leaseagreement,At thedateofexpiry 2 August 2017, DuroFelguera, Oviedo) which, untilsaiddate, DuroFelguera, S.A. leasetoHispamerRenting, hadleasedunderanoperating 5 deGijón; andc/GonzálezBesada, 25, c/MarquésdeSantaCruz, 14yc/SantaSusana, 20, respectively in signed afinance buildings owned leaseagreementfor various by(offices theformer inc/RodríguezSampedro, On 2 August 2007, thecompany SantanderdeLeasing, S.A., E.S.C. (lessor)andDuroFelguera, S.A. (lessee) (opening commissionof0.30%andadifferential+0.5%) instalmentofannual Euribor (including thepurchaseoption) (6,849) 12,562 14,517 21,366 10,770 10,949 3,757 9,225 (420) (179) 2007 2007 2007 Thousand euros Thousand euros Thousand euros Thousand euros (5,345) 16,021 21,366 9,293 2,942 9,650 5,018 4,632 1,021 9,225 2006 2006 2006 (69) (68) 952 - 125 DURO FELGUERA 07 ANNUAL REPORT ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

Investment property is measured annually at 31 December and carried at historical cost and relates mainly to:

- Land, most of which is located in the municipality of Langreo (Asturias), having a total plot area of 619,783 square metres. Of this total, 444,484 square metres relate to 19 plots classed as rural land, at different locations in the municipality. The remaining 175,299 square metres relates to plots classed as industrial land.

At the end of 2005 the Company requested appraisals from an independent third party for the land classified as for industrial use. The market value and carrying amount of the industrial land at 31 December 2005 are 6,342 thousand and 5,944 thousand, respectively. At 31 December 2007 the Group’s Directors do not consider that there have been any significant changes in these appraisals.

- On 15 February 2007 Duro Felguera acquired from the Federación de Entidades Inmobiliarias, S.A. a series of estates located in Latores (Oviedo), commonly known as “Colegio Peñaubiña) for euros 3.7 million. At the date of formulation of these accounts, no firm decision has been taken on the final use of these assets in the future.

8. INTANGIBLE ASSETS

Set out below is an analysis of the main intangible asset classes showing movements in assets generated internally and other intangible assets: 126

2006 Thousand euros

Development Computer and innovation software Other Total COST Opening balance 4,685 3,450 352 8,487 Additions 445 137 - 582 Disposals (1,067) (27) - (1,094) Transfers 6 - - 6 Closing balance 4,069 3,560 352 7,981 ECONOMIC AND FINANTIAL INFORMATION 2007 AMORTISATION Opening balance (3,174) (2,735) (118) (6,027) Appropriations (526) (243) (22) (791) Disposals 307 27 - 334 Transfers 33 (39) - (6) Closing balance (3,360) (2,990) (140) (6,490) CARRYING AMOUNT Opening balance 1,511 715 234 2,460 Closing balance 709 570 212 1,491 2007 Thousand euros

Development Computer and innovation software Other Total COST Opening balance 4,069 3,560 352 7,981 Additions 199 159 - 358 Disposals (57) (3) - (60) Transfers (9) (1) - (10) Closing balance 4,202 3,715 352 8,269 AMORTISATION Opening balance (3,360) (2,990) (140) (6,490) Appropriations (339) (242) (16) (597) Disposals 57 - - 57 127 Transfers - (6) - (6) Closing balance (3,642) (3,238) (156) (7,036) CARRYING AMOUNT Opening balance 709 570 212 1,491 Closing balance 560 477 196 1,233

9. INVESTMENTS IN ASSOCIATES Thousand euros 2007 2006 Opening balance 3,224 2,876 Acquisitions - - Disposals (231) (35) Other movements (453) 166 Share of profit/(loss) (1,433) 217 Closing balance 1,107 3,224 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

The Group’s interest in its principal associates, all of which are unlisted, is as follows:

Thousand euros Thousand euros Country of % Profit / Name incorporation Assets Liabilities interest Income (Loss) 2006

• Zoreda Internacional, S.A. Spain 51 - 40% - - • Kepler-Mompresa, S.A. Mexico (*) (*) 50% (*) (*) • Sociedad de Servicios Energéticos Colombia (*) (*) 25% (*) (*) Iberioamericanos, S.A. • Ingeniería y Proyectos Spain 3,462 2,885 50% 1,183 131 Medioambientales, S.A. • MHI-Duro Felguera, S.A. Spain 16,859 12,600 45% 16,921 267 • Secicar, S.A. Spain 33,233 31,234 17.69% 169,861 232 • Green Fuel Extremadura, S.A. Spain 1,630 68 14.81% 131 (251) • Petróleos Asturianos, S.L. Spain 8,639 8,211 19.8% - (5) 2007 128 • Zoreda Internacional, S.A. Spain 51 - 40% - - • Kepler-Mompresa, S.A. Mexico (*) (*) 50% (*) (*) • Sociedad de Servicios Energéticos Colombia (*) (*) 25% (*) (*) Iberioamericanos, S.A. • Ingeniería y Proyectos Spain 2,997 2,186 50% 1,621 234 Medioambientales, S.A. • MHI-Duro Felguera, S.A. Spain 1,287 1,605 45% 1,399 (3,625) • Secicar, S.A. Spain 31,738 29,438 17.69% 187,638 301 • Petróleos Asturianos, S.L. Spain 16,201 15,795 19.8% - (22)

(*) Dormant companies 9. FINANCIAL INSTRUMENTS

a| FINANCIAL INSTRUMENTS BY TYPE

Accounting policies on financial instruments have been applied to the accounts broken down as follows:

ECONOMIC AND FINANTIAL INFORMATION 2007 Thousand euros

Loans and Fair value assets Available 31 December 2006 receivables through results for sale Total Capitalised assets - Available for sale financial assets - - 355 355 - Loans and accounts receivable 249,953 - - 249,953 - Other fair value financial assets through - 5,911 - 5,911 results - Cash and cash equivalents - 210,039 - 210,039 Total 249,953 215,950 355 466,258

Thousand euros

Fair value assets Other financial 31 December 2006 through results liabilities Total Capitalised liabilities - Loans 26,336 - 26,336 Total 26,336 - 26,336 Thousand euros

Loans and Fair value assets Available 31 December 2007 receivables through results for sale Total Capitalised assets - Available for sale financial assets - - 362 362 - Loans and accounts receivable 364,835 - - 364,835 - Other fair value financial assets - 4,130 - 4,130 through results - Cash and cash equivalents - 314,032 - 314,032 Total 364,835 318,162 362 683,359

Thousand euros

Fair value assets Other financial 31 December 2007 through results liabilities Total Capitalised liabilities - Loans 57,575 - 57,575 Total 57,575 - 57,575 129 11. HELD-TO-MATURITY FINANCIAL ASSETS

The balance in this caption includes an amount of Euros 2,837 thousand for financial assets whose realisation is determined in its amount and are not traded on an active market and are related to certain tax benefits (Note 2.9 c). The shareholding percentage of Duro Felguera in these is 49% in both cases.

It also includes the sum of 696 thousand for the provisional enforcement of a court ruling. In 2001 the Company became aware of a lawsuit filed against it with respect to completed work. On 28 February 2003, Court of First Instance No. 1 in Madrid ruled against the Company and awarded 537 thousand plus legal interest accrued up to the date of payment. An appeal has been filed and therefore the Company has put 696 thousand in escrow at the Court (same amount in 2006) as recognised under Long-term deposits. The Company also records a provision of 696 thousand under Other provisions (same amount in 2006).

The remaining held-to-maturity financial assets amount to 540 thousand at 31 December 2007 (2006: Euros 601 thousand).

12. TRADE AND OTHER RECEIVABLES

Thousand euros 2007 2006 Debtors 286,049 187,138 Less: Provision for impairment of trade receivables (2,020) (2,271) Work completed pending certification 41,960 29,095 Other receivables 34,463 28,804 Less: Provision for impairment losses relating to other receivables - (296) Pre-payments 448 47 Receivables from related parties (Note 36) 4,248 7,022 Loans granted to related parties 300 - Total 365,448 249,539 Less: Non-current portion: other receivables (1,372) (688) Current portion 364,076 248,851

All trade and other receivables are carried at fair value. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

Set out below is an analysis of the annual maturity dates of the balances included in “Other receivables”:

Maturity date Thousand euros 2008 33,091 2009 610 2010 380 2011 44 2012 37 Subsequent years 301 34,463 Less current portion (33,091)

Total non-current 1,372

There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers, internationally dispersed.

13. INVENTORIES 130 Thousand euros 2007 2006

Materials and Production supplies 12,355 11,512 Work in progress 11,842 6,717 Finished products 283 145 Pre-payments to suppliers 16,095 1,527 40,575 19,901 Less: Impairment losses (779) (604) 39,796 19,297

Impairment losses affect slow-moving or obsolete materials and supplies, adjusting their cost to their fair realisable value.

ECONOMIC AND FINANTIAL INFORMATION 2007 14. CASH AND CASH EQUIVALENTS Thousand euros 2007 2006 Cash at banks and in hand 101,249 20,316 Short-term bank deposits 212,783 189,723 314,032 210,039

Short-term deposits at credit institutions relate to investments of cash surplus maturing in less than 3 months. The effective interest rate for short-term deposits at credit institutions were market rates (ranging between 3.6% and 5.2%, on average, in 2006 and 2007, respectively, adjusted for the exchange rate effect for deposits denominated in foreign currency).

At 31 December 2007, out of the total balance of Euros 101,249 thousand, Joint Venture current bank accounts were recorded and were remunerated at the high interest rates offered by the banking market at the end of 2007 in the approximate amount of Euros 64,567 thousand. 15. SHARE CAPITAL

At 31 December 2007 the share capital of Duro Felguera, S.A. consisted of 102,016,601 fully-subscribed and paid shares represented by book entries, each with a par value of Euros 0.5 per share. All the shares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the same voting and dividend rights.

According to the reports submitted to the CNMV, the following legal persons have a shareholding equal to or greater than 3% of the share capital of the Company at the 2007 year end:

Direct shareholding Shareholder percentage Inversiones Somió, S.R.L. 22.724 % Residencial Vegasol, S.L. 19.814 % TSK Electrónica y Electricidad, S.A. 10.010 % Ingeniería, Montajes y Construcciones, S.A. 9.530 % Construcciones Termoracama, S.L. 6.787 % Cartera de Inversiones Melca, S. L. 6.327 % Liquidambar Inversiones Financieras, S.A. 6.000 % 131 16. RETAINED EARNINGS AND OTHER RESERVES

Movements in this caption are shown below:

Reserves in consolidated Parent Revaluation Other companies company’s reserve Royal Parent and effect of legal Decree-Law company first Profit/(loss) reserve 7/1996 reserves conversion for the year Total At 31 December 2005 4,256 958 149 20,619 23,188 49,170 Distribution of 2005 profit 1,858 - 9,338 4,600 (23,188) (7,392) Bonus share issue - - (6,376) - - (6,376) Profit for the year - - - - 34,010 34,010

At 31 December 2006 6,114 958 3,111 25,219 34,010 69,412 Distribution of 2006 profit 2,762 - 7,820 6,391 (34,010) (17,037) Result for the year - - - - 42,474 42,474 At 31 December 2007 8,876 958 10,931 31,610 42,474 94,849

LEGAL RESERVE

Appropriations to the legal reserve have been made in compliance with Article 214 of the Spanish Companies Act 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 of no other reserves being available, it must be replenished out of future profits.

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 from1 January 2007 the balance may be taken to freely distributable reserves provided that the monetary capital gain has been realised. The part of the capital gain relating to depreciation that has been recorded in the accounts and capital 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

gains on restated assets which have been transferred or written off is deemed to have been realised. Should the balance in this account be used for any purpose other than those defined by Royal Decree-Law 7/1996, the balance will become taxable.

AVAILABILITY AND RESTRICTIONS ON RESERVES AND RETAINED EARNINGS

The breakdown by company at 31 December 2007 and 2006 of reserves and retained earnings is as follows:

Thousand euros Company 2007 2006 Full consolidation: Duro Felguera Plantas Industriales, S.A. (3,892) (3,946) Felguera Melt, S.A. 6,452 5,058 Felguera Rail, S.A. (562) (618) Acervo, S.A. (183) (184) Inmobiliaria de Empresas de Langreo, S.A. (791) (808) Forjas y Estampaciones Asturianas, S.A. (128) (131) 132 Felguera Grúas y Almacenaje, S.A. 162 251 Felguera Montajes y Mantenimiento, S.A. 996 1,073 Montajes de Maquinaria de Precisión, S.A. (159) (60) Felguera Revestimientos, S.A. 64 60 Técnicas de Entibación, S.A. (2,388) (2,404) Felguera Parques y Minas, S.A. (608) (837) Felguera Calderería Pesada, S.A. 2,443 (1,083) Felguera Calderería Pesada Servicios, S.A. (643) (628) Pontonas del Musel, S.A. 24 21 Felguera Construcciones Mecánicas, S.A. (18,073) (14,500) Felguera I.H.I., S.A. 8,903 8,767 Duro Felguera Investment, S.A. 15,086 12,646 Felguera Tecnologías de la Información, S.A. 140 54 Operación y Mantenimiento, S.A. 167 149 Duro Felguera México, S.A. de C.V. - 6,878 Turbogeneradores de México, S.A. de C.V. 26 30 Duro Metalurgia México, S.A. de C.V. (95) (33) Duro Felguera México Power, S.A. de C.V. 13 13 Equipamientos Construcciones y Montajes, S.A. de C.V. 293 (5,984)

ECONOMIC AND FINANTIAL INFORMATION 2007 Duro Felguera do Brasil Ltda. - (4) Proyectos e Ingeniería Pycor, S.A. de C.V. 7 (823) Turbogeneradores de Perú, S.A.C. (47) 47 7,207 3,004 Equity accounting: Zoreda Internacional, S.A. (8) (8) Sociedad de Servicios Energéticos Iberoamericanos, S.A. (2) (2) Kepler – Mompresa, S.A. de C.V. 6 6 Ingeniería de Proyectos Medioambientales, S.A. 228 163 Secicar, S.A. (140) (182) Green Fuel Extremadura, S.A. - (35) MHI – Duro Felguera, S.A. 138 - 222 (58) 7,429 2,946 Reserves and retained earnings pertaining to fully-consolidated companies, the distribution of which is subject to legal requirements, relate to:

Thousand euros 2007 2006 Legal reserve 22,833 20,710 Revaluation reserves Royal Decree-Law 7/1996 2,534 2,534 25,367 23,244

The contribution of each company in the consolidation scope to profit is as follows

Thousand euros Company 2007 2006 Duro Felguera, S.A. 9,183 7,944 Full consolidation: Duro Felguera Plantas Industriales, S.A. 9,657 10,954 Felguera Melt, S.A. 2,724 3,368 Felguera Rail, S.A. 358 141 133 Acervo, S.A. 249 166 Inmobiliaria de Empresas de Langreo, S.A. 30 23 Forjas y Estampaciones Asturianas, S.A. 7 3 Felguera Grúas y Almacenaje, S.A. 147 21 Felguera Montajes y Mantenimiento, S.A. 4,352 3,245 Montajes de Maquinaria de Precisión, S.A. 2,763 2,838 Felguera Revestimientos, S.A. 586 554 Técnicas de Entibación, S.A. 1,709 1,564 Felguera Parques y Minas, S.A. 1,452 215 Felguera Calderería Pesada, S.A. 4,872 3,535 Felguera Calderería Pesada Servicios, S.A. (59) (8) Pontonas del Musel, S.A. 9 5 Felguera Construcciones Mecánicas, S.A. 1,271 (3,493) Felguera I.H.I., S.A. 4,085 4,333 Duro Felguera Investment, S.A. (459) (446) Felguera Tecnologías de la Información, S.A. 163 143 Operación y Mantenimiento, S.A. 814 397 Opemasa Argentina, S.A. 94 - Opemasa Andina, Ltda. 31 - Duro Felguera México, S.A. de C.V. (121) 349 Turbogeneradores de México, S.A. de C.V. - (2) Duro Metalurgia México, S.A. de C.V. 13 - Duro Felguera México Power, S.A. de C.V. (1) (5) Equipamientos Construcciones y Montajes, S.A. de C.V. (7) (349) Duro Felguera do Brasil Ltda. - - Proyectos e Ingeniería Pycor, S.A. de C.V. 13 (49) Turbogeneradores de Perú, S.A.C. 1,245 15 Felguera Renovables, S.A. 2 - Felguera Biodiesel Gijón, S.A. (186) - Soluciones Energéticas Argentina, S.A. 1,415 - Montajes Eléctricos Industriales, S.L. (385) - 46,026 35,461 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

Thousand euros Company 2007 2006 Equity consolidated: Zoreda Internacional, S.A. - - Sociedad de Servicios Energéticos Iberoamericanos, S.A. - - Kepler – Mompresa, S.A. de C.V. - - Ingeniería de Proyectos Medioambientales, S.A. 117 101 Secicar, S.A. 89 105 Green Fuel Extremadura, S.A. - (37) Petróleos Asturianos, S.A. (8) - MHI – Duro Felguera, S.A. (1,631) 187 (1,433) 356 44,593 35,817 The proposed distribution of 2007 profit and other reserves of the parent Company to be presented to the General Meeting of Shareholders and the distribution adopted for 2006 is as follows: Thousand euros 2007 2006 134 Basis of distribution Profit (loss) for the year 27,826 27,619 Voluntary reserves 4,104 - 31,930 27,619 Distribution Legal reserve 1,325 2,762 Retained earnings - 7,820 Dividends 30,605 17,037 31,930 27,619 RESTRICTIONS ON DIVIDEND DISTRIBUTION

The distribution of the reserves described as available for distribution and of profits for the year is, however, subject to the following restriction:

- Dividends may not be distributed if by so doing the balance in reserves is reduced to below aggregate unamortised development and innovation expenses. Consequently, approximately 560 thousand of the balance in distributable reserves is not available for distribution ( 709 thousand in 2006).

ECONOMIC AND FINANTIAL INFORMATION 2007 17. INTERIM DIVIDEND

On 28 November 2007 the Parent Company’s Board of Directors adopted a resolution to distribute an interim dividend on account of 2007 results. The gross dividend is 0.07 per share, for a total of 7,141 thousand payable on 11 December 2007 (Note 32).

In accordance with Article 216 of the Spanish Companies Act, the Directors prepared the following statement reflecting the existence of sufficient liquidity: Thousand euros Forecast of distributable 2007 profits Projected profits net of taxes at 31.12.07 27,500 Estimated distributable 2007 profits 24,750 Interim dividend payable 7,141

Forecast of cash resources for the period 30.11.07 to 30.11.08 Cash at bank and in hand at 30.11.07 105,041 Projected collections 210,296 Projected payments including interim dividend (292,773) Projected cash at bank and in hand at 30.11.08 22,564 18. MINORITY SHAREHOLDINGS

Movements in Minority interests are as follows:

Thousand euros 2007 2006 Opening balance 7,859 7,609 Result for the year 2,119 1,807 Dividends (1,323) (1,600) Incorporation of the companies 1,157 43 Closing balance 9,812 7,859

The distribution by company is set out below: Thousand euros Company 2007 2006 Felguera IHI, S.A 7,805 7,411 Felguera Tecnologías de la información, S.A. 276 241 135 Pontonas del Musel, S.A. 166 164 Felguera Renovables, S.A. 37 43 Felguera Biodiesel Gijón, S.A. 1,009 - Montajes Eléctricos Industriales, S.L. 23 - Soluciones Energéticas Argentina, S.A. 496 - 9,812 7,859

19. DEFERRED REVENUES Movements in this heading break down as follows:

Thousand euros Opening Release to Closing balance Additions profit Disposals balance Capital grants 7,438 163 (599) (326) 6,676 Other deferred revenues 2,462 2,261 (66) - 4,657 9,900 11,333

a| OTHER DEFERRED REVENUES

Other deferred revenues includes the amount resulting from the updating at the year end of subsidised- interest type loans to be released to profit and loss in future years as the assets financed by loans of this type are depreciated. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

20. BORROWINGS Thousand euros 2007 2006 Non-current Bank borrowings 10,005 18,657 Finance lease liabilities 9,119 7,100 Restated debt for commitment to purchase shares from minority shareholders 1,962 1,363 Other loans 16,263 - 37,349 27,120 Current Credit lines utilised 31,307 7,679 Bills discounted pending maturity 1,269 1,797 Finance lease liabilities 851 244 Interest and other payables 1,335 332 34,762 10,052 Total borrowings 72,111 37,172

136 Average interest rates paid on utilised credit lines in 2007 and 2006 were between Euribor + 0.4 and Euribor +0.6. The average rate on bills discounted pending maturity was 4.5% in 2007 (3.75% in 2006). Non-current borrowings have the following maturities:

Thousand euros 2007 2006 Between 1 and 2 years 10,375 16,686 Between 2 and 5 years 13,513 7,284 More than 5 years 13,461 3,150 37,349 27,120

The Group has the following unused credit lines:

Thousand euros 2007 2006 Variable rate: ECONOMIC AND FINANTIAL INFORMATION 2007 – maturing in less than one year 56,169 54,999 – maturing in more than one year 77,929 122,785 134,098 177,784

a| LEASES

Lease liabilities are effectively secured if the rights to the leased asset revert to the lessor in the event of default.

Thousand euros 2007 2006 Finance lease liabilities, minimum lease payments: – Less than 1 year 1,699 244 – Between 1 and 5 years 7,420 7,100 9,119 7,344 21. TRADE AND OTHER PAYABLES

Thousand euros 2007 2006 Trade payables 200,072 146,969 Uncalled amounts on shares held 5 904 Payables to related parties (note 36) 6,325 7,559 Other payables 7,684 2,056 Advances received on contracted work 324,108 210,484 Social Security and other taxes 27,652 19,289 565,846 387,261 Non-current portion (5) (904) 565,841 386,357

22. DEFERRED INCOME TAX

Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off current and deferred tax assets and liabilities relating to the same tax authorities. The following amounts have been offset: 137

Thousand euros 2007 2006 Deferred tax assets: – Deferred tax assets to be recovered in more than 12 months 7,343 7,494 – Deferred tax assets to be recovered within 12 months 3,135 2,021 10,478 9,515 Deferred tax liabilities: – Deferred tax assets to be recovered in more than 12 months (7,926) (7,236) – Deferred tax liabilities to be recovered within 12 months (567) (1,695) (8,493) (8,931) Net 1,985 584

The gross movement in deferred income tax is shown below: Thousand euros 2007 2006 Opening balance 584 311 Charged to income statement 1,401 273 Closing balance 1,985 584 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

Movements during the year in deferred tax assets and liabilities are as follows:

Thousand euros Provision for Tax-loss obligations relating carryforwards and Deferred tax assets to employees tax deductions Other Total At 01 January 2006 5,077 2,624 2,484 10,185 Charged / (credited) to income statement (38) (2,089) 1,457 (670) At 31 December 2006 5,039 535 3,941 9,515 Charged / (credited) to income statement (778) (316) 2,057 963 At 31 December 2007 4,261 219 5,998 10,478

Thousand euros Gains on non- current asset Asset Deferred tax liabilities transactions restatement Other Total 138 At 01 January 2006 197 9,418 166 9,781 Charged / (credited) to income statement (30) (1,142) 229 (943) At 31 December 2006 167 8,276 395 8,838 Charged / (credited) to income statement (2) (392) 49 (345) At 31 December 2007 165 7,884 444 8,493

23. OBLIGATIONS RELATING TO EMPLOYEES Thousand euros 2007 2006 Non-current obligations Coal vouchers 1,450 1,505 Other obligations relating to employees 5,895 5,675 7,345 7,180 Current obligations Accrued wages and salaries 4,495 4,525 ECONOMIC AND FINANTIAL INFORMATION 2007 Profit sharing and bonuses 4,014 3,345 8,509 7,870

a| COAL VOUCHERS

The movement in the liability recognised in the balance sheet is as follows: Thousand euros Current Retired employees employees Total At 01 January 2006 104 704 808 Appropriations 84 631 715 Payments - (18) (18) At 31 December 2006 188 1,317 1,505 Appropriations 20 55 75 Payments (39) (91) (130) At 31 December 2007 169 1,281 1,450

The amounts of the annual allocations for coal have been determined in accordance with the actuarial studies described in note 2.17a). b| OTHER OBLIGATIONS RELATING TO EMPLOYEES

The movement in the liability recognised in the balance sheet is as follows:

Thousand euros At 01 January 2006 5,825 Appropriations charged to income statement: 2,379 Applications (187) Surplus (2,342) At 31 December 2006 5,675 Appropriations charged to income statement: 1,556 Applications (1,089) Surplus (247) At 31 December 2007 5,895

24. PROVISIONS FOR OTHER LIABILITIES AND CHARGES Thousand euros Provision for construction Trade work provisions Other Total 139 At 01 January 2006 14,945 2,120 669 17,734 Charged to income statement: - Appropriations 8,575 570 1,470 10,615 - Applications (7,815) (340) (252) (8,407) Transfers - (367) (367) At 31 December 2006 15,705 2,350 1,520 19,575 Charged to income statement: - Appropriations 9,885 2,287 504 12,676 - Applications (8,145) (566) (221) (8,932) Transfers - - 400 400 At 31 December 2007 17,445 4,071 2,203 23,719

The “Provision for construction work” includes amounts reasonably estimated that should be provided for as a result of the various contractual clauses referring to warranties and liabilities, which, as the case may be, will have to be borne after completion of the different works, and, taking into account the historical evolution of the amounts that have been borne for contingencies of this type in the past.

Likewise, “Other provision” includes, basically, risks for disputes in course.

Thousand euros 2007 2006 Analysis of total provisions: - Non-current 1,593 1,059 - Current 22,126 18,516 23,719 19,575 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

25. ORDINARY REVENUES Thousand euros 2007 2006 Sale of capital goods 106,191 93,779 Integrated management of industrial projects 683,749 417,785 Ancillary services 59,461 49,054 Other 259 5,825 Sales and services rendered 849,660 566,443

26. EMPLOYEE BENEFIT EXPENSES Thousand euros 2007 2006 Wages and salaries 86,438 77,207 Indemnities 908 506 Social Security expense 20,999 18,772 Own work capitalised 51 40 140 Other social welfare expenses 1,910 3,614 110,306 100,139

27. OPERATING EXPENSES Thousand euros 2007 2006 Leases 10,474 6,858 Independent professional services 33,942 23,309 Research and development expenses 9 - Transport 3,649 3,159 Advertising 2,265 2,050 Insurance premiums 3,954 3,077 Repairs and maintenance 3,203 2,572 Bank and similar services 2,713 2,285 Supplies 5,169 5,601 Sale commissions 9,580 6,539 Other services 41,804 26,667 ECONOMIC AND FINANTIAL INFORMATION 2007 116,762 82,117

“Independent professional services” includes the expenses accrued for project technical assistance services rendered by third parties totalling Euros 22.7 million (2006: 16.9 million).

Furthermore, “Other services” includes the expenses accrued for Joint Venture integration totalling approximately Euros 18.5 million (2006: Euros 8.2 million). 28. OTHER NET GAINS / (LOSSES) Thousand euros 2007 2006 Capital grants (Note 19) 599 908 Other deferred revenues (Note 19) 66 - Operating grants 1,806 541 Profit/(loss) on sale of property, plant and equipment 1,278 (605) Own work capitalised 579 746 Taxes (1,462) (1,352) Change in trade provisions (3,741) (2,208) Other obligations relating to employees - 2,342 Other (334) 1,065 (1,209) 1,437

29. NET FINANCIAL COSTS Thousand euros 2007 2006 Financial expense and similar costs (5,154) (1,830) 141 Income: – Interest 10,116 4,661 Subtotal 4,962 2,831 Net exchange gain/(loss) (3,195) (2,577) Total net financial income/(cost) 1,767 254

30. INCOME TAX Thousand euros 2007 2006 Current tax 16,721 9,264 Foreign taxes 275 353 Deductions from tax payable (2,984) (4,975) Current-year deferred income tax (282) 2,229 Tax credits recognised in prior years (186) 2,565 Deferred income taxes not recognised in prior years - (5,275) Effect of tax rate change (54) 44 Other 2,056 - 15,546 4,205 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

The reconciliation between consolidated reported profits and taxable profits is set out below:

Thousand euros 2007 2006 Consolidated profit/(loss) 42,474 34,010 Minority interests 2,119 1,807 Corporate income tax 15,546 4,205 Consolidated reported profit for the year before taxes 60,139 40,022 Consolidation adjustments 270 2,310 Permanent differences (9,653) (1,483) Timing differences 869 (6,966) Offset of tax-loss carryforwards from tax group (168) (7,331) Offset of tax-loss carryforwards from outside the group (5) (84) Taxable income: Attributable to the Tax Group 37,952 19,700 Taxable income not attributable to the Tax Group 13,616 6,768 Tax losses not attributable to the Tax Group (116) - 142 51,452 26,468

The net temporary differences of the individual companies relate basically to differences between accounting and tax treatment in the timing of appropriations to and reversals of provisions.

Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests of more than 75% are subject to corporate income tax under the tax scheme for groups of companies. Accordingly, the assessment base is determined based on the consolidated results of Duro Felguera, S.A. and the Spanish subsidiaries.

Under the special tax scheme for groups of companies, the entire consolidated group is treated as a single taxpayer.

Each of the consolidated companies must, however, calculate the tax expense that would have been recorded had an individual tax return been filed. Corporate income tax payable or receivable (tax credit) must be recorded depending on whether the company contributes a profit or a loss.

All the Company’s and subsidiaries’ returns for the main taxes to which they are subject and the years that have not become statute-barred are open to inspection by the tax authorities. Taxes may not be deemed definitively paid until the four-year lapsing period has expired. The Directors of the Parent company do not expect any additional significant contingencies that could affect the accompanying consolidated annual accounts to arise in ECONOMIC AND FINANTIAL INFORMATION 2007 the event of an inspection.

31. EARNINGS PER SHARE

a| BASIC

Basic earnings per share are calculated by dividing the profit attributable to the Company’s shareholders by the weighted average number of outstanding ordinary shares for the year (note 15).

2007 2006 Profit attributable to the company’s shareholders ( k) 42,474 34,010 Weighted average number of outstanding ordinary shares (thousand) 102,017 57,314 Basic earnings per share ( per share) 0.42 0.59 b| DILUTED

Diluted earnings per share are calculated by adjusting the weighted average number of outstanding ordinary shares to reflect the conversion of all potentially dilutive ordinary shares. The Company has no potentially dilutive ordinary shares.

32. DIVIDENDS PER SHARE

During 2007 an interim dividend was paid on 20 March 2007 and another supplementary dividend was paid on 7 June 2007, relating to 2006 results, in the amount of 0.05 and 0.067 per share, respectively, over a total number of 102,016,601 shares.

Furthermore, on 11 December 2007 an interim dividend was paid against 2007 results totalling Euros 0.07 per share on the same number of shares (Note 17). On 27 February 2008 the Board of Directors adopted a second interim dividend payout for 2007 of Euros 0.15 per share payable on 12 March 2008. Additionally, a proposal will be brought to the General Meeting of Shareholders to pay out a supplementary dividend of Euros 0.08 per share.

33. CASH GENERATED FROM OPERATIONS

Thousand euros 2007 2006 143 Profit for the year 44,593 35,817 Adjustments for: – Taxes (note 30) 15,546 4,205 – Depreciation of property, plant and equipment (note 6) 6,598 6,481 – Amortisation of intangible assets (Note 8) 597 791 – (Profit)/loss on sale of property, plant and equipment (see below) (1,278) 198 – Loss on write off of intangible assets (Note 8) 3 760 – Grants and other deferred revenues credited to income statement (Note 28) (665) (908) – Net movements in provisions 534 114 – Net movements in obligations relating to employees (Note 23) 165 547 – Gain on lease-back operation - (358) – Other movements in financial assets (7) 168 – Interest income (note 29) (10,116) (4,661) – Interest expense (note 29) 5,154 1,830 – Share in loss/(profit) of associates (note 9) 1,433 (217) Changes in working capital (excluding effects of acquisition and exchange differences on consolidation): – Inventories (20,499) (2,527) – Trade and other receivables (115,225) (16,244) – Other financial assets at fair value through profit or loss 2,006 (2,005) – Financial receivables (345) 428 – Trade and other payables 185,408 130,905 Cash generated from operations 113,902 155,324

In the cash flow statement, proceeds from the sale of property, plant and equipment include: Thousand euros 2007 2006 Carrying amount (note 6 and 7) 7,011 248 Profit/(loss) on sale of property, plant and equipment 1,278 (198) Proceeds from sale of property, plant and equipment 8,289 50 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

34. CONTINGENCIES The Group has contingent liabilities in respect of bank and other guarantees arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from contingent liabilities. At 31 December 2007 and 2006 the Group presented the following guarantees (thousand euros):

Thousand euros 2007 2006 Bids submitted to tender 2,307 2,470 Guarantees under sale agreements in the process of enforcement 453,520 411,998 Multiuser lines of credit 77,237 57,139 Other 19,507 25,748 552,571 497,355 35. COMMITMENTS a| CAPITAL COMMITMENTS 144 Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

Thousand euros 2007 2006 Property, plant and equipment 5,788 3,700 5,788 3,700

b| HEDGING TRANSACTIONS

The notional principals of forward contracts in foreign currency outstanding at 31 December 2007 total USD 5,000 thousand. It is expected that highly probable future hedges denominated in foreign currency will be transacted in the next 12 months. The gains and losses recognised in the hedge reserve under net equity generated from forward contracts in foreign currency at 31 December 2007 are recognised in the income statement in the period or periods during which the hedged transaction affects the income statement.

36. RELATED-PARTY TRANSACTIONS

ECONOMIC AND FINANTIAL INFORMATION 2007 The following transactions were carried out with related parties:

a| SALES OF GOODS AND SERVICES

Thousand euros 2007 2006 Sales of goods and services: - Associates 8,457 10,689 - Related parties - 606 8,457 11,295

Goods and services are sold on the basis of price lists in force with non-related parties. b| PURCHASES OF GOODS AND SERVICES Thousand euros 2007 2006 Acquisition of goods and services: - Associates 96 - - Related parties 12,682 15,971 12,778 15,971 All the above-mentioned transactions were effected in the ordinary course of business on an arm’s length basis. c| COMPENSATION FOR KEY MANAGEMENT AND DIRECTORS Thousand euros 2007 2006

Salaries and other short-term compensation for employees, managers and directors 4,017 3,265 4,017 3,265 145 d| YEAR-END BALANCES ARISING FROM SALES/PURCHASES OF GOODS/SERVICES Thousand euros 2007 2006 Receivables from related parties (note 12) - Associates 4,248 7,017 - Related parties - 5 4,248 7,022 Payables to related parties (note 21) - Associates 111 17 - Related parties 6,214 7,542 6,325 7,559

e| LOANS TO RELATED PARTIES Thousand euros 2007 2006 Loans to directors, managers and their relatives: Opening balance - - Loans granted during the year 300 - Repayments of loans received - - Interest charged - - Interest received - - Closing balance 300 -

The loans relate exclusively to top management personnel.

f| Article 127, 4.3 of the Spanish Companies Act: information from directors of shareholdings, offices, functions and activities in companies with the same, analogous or complementary activity:

For the purposes of Article 127 of the Spanish Companies Act (LSA) and in connection with the activities of the Board members, the following should be noted:

The Chairman, Mr. Juan Carlos Torres Inclán, holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

The Board Member INVERSIONES SOMIO, S.R.L. (current Vice-Chairman) holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Likewise, its representative on the Board, Mr. Juan Gonzalo Álvarez, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Board Member, Mr. José Luis García Arias (Vice-Chairman until 19 December 2007) holds a 37.78% interest in the company Cartera de Inversiones Melca, S.L., which is in turn the single shareholder of Arside Construcciones Mecánicas, S.A., a company engaged in activities the same as or similar or complementary to those of Duro Felguera, S.A.

The Director INVERSIONES EL PILES, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Ángel Antonio del Valle Suárez, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director CONSTRUCCIONES URBANAS DEL PRINCIPADO, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Javier Sierra Villa holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Neither does its 146 former representative on the Board, Mr. Manuel González González (representative on the Board until 26 November 2007) engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. at that date.

The Director CONSTRUCCIONES TERMORACAMA, S.A. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Ramiro Arias López, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director RESIDENCIAL VEGASOL, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. José Antonio Aguilera Izquierdo, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director Mr. Marcos Antuña Egocheaga holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to

ECONOMIC AND FINANTIAL INFORMATION 2007 those of DURO FELGUERA, S.A.

The Director Mr. José Manuel Agüera Sirgo holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director Mr. Acacio Faustino Rodríguez García holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. He is the Managing Director of the consultancy UNILOG, which engages in business advisory services, and is occasionally required to take minor shareholdings in companies whose activities are the same as or similar or complementary to those of Duro Felguera, S.A. However, these are not controlling interests and generally relate to companies operating in a different market segment from DURO FELGUERA, S.A.

The former Director TSK ELECTRONICA Y ELECTRICIDAD, S.A. (Board Member until 25 April 2007) is engaged in an activity complementary to that of Duro Felguera, S.A. Its representative on the Board of Directors, Mr. Sabino García Vallina, was the CEO of TSK ELECTRONICA Y ELECTRICIDAD, S.A. and was also a Director of the company PHB WESSERHÜTE, S.A. The former Director PHB WESSERHÜTE, S.A. Board Member until 25 April 2007) is engaged in an activity that is similar and complementary to that of Duro Felguera, S.A.. Additionally, its former Board representative, Mr. Carlos Vento Torres, was the commercial representative of the Dutch group NEM BV, which designs and manufactures steam recovery boilers, an activity that is similar or complementary to that of Duro Felguera, S.A., at that date.

This information refers to the activities of the Directors with respect to Duro Felguera, S.A. and its subsidiaries.

37. JOINT VENTURES

The Group is involved in a number of joint ventures. The Group’s interest in the operating funds, receivables and payables of the joint ventures, as well as transactions with the joint ventures, are eliminated when the joint venture’s balance sheet items are proportionally integrated. Any surplus (or shortfall) in balances paid to the other members remain on the balance sheet.

Set out below is an analysis of the Group’s most significant joint ventures at 31 December 2007 showing shareholdings and other relevant information: Information on companies (thousand euros) 147 % Profit for Company Activity Address sharholding Assets the year UTE As Pontes Transformation, review and Langreo 65 4,126 194 improvements at Puentes de García Rodríguez thermal power plant UTE FMM-MCAV Monfalcone Supply, prefabrication and assembly of Langreo 51 2,519 - rubber fitted metal piping for the Desulphuration for the Monfalcone thermal power plant UTE DF – TR Barranco II Turnkey supply of Barranco II combined Gijón 50 20,241 1228 cycle plant UTE CTCC Puentes Turnkey supply of Puentes combined Gijón 50 23,116 (5,205) cycle plant UTE CTCC Barcelona Construction of Puerto Barcelona Madrid 50 80,425 1,641 combined cycle power plant UTE Tierra Amarilla Supply of certain equipment for the Gijón 100 12,538 2,311 construction a simple cycle thermal power plant in Tierra Amarilla UTE Genelba Supply of certain equipment and services Gijón 100 2,593 0 for the expansion of the Genelba thermal power plant UTE Besós V Construction of a Combined Cycle Madrid 50 48,490 91 power plant in Sant Adriá de Besós (Barcelona) UTE FIF Tanque TK-3001 Turnkey construction of a liquefied natural Madrid 35,40 3,544 - gas storage tank - Barcelona UTE FIF Tanque FB241 GNL Turnkey construction of a liquefied natural Madrid 35,40 9,526 - gas storage tank - Barcelona UTE FIF GNL TK – 3002/03 Execution of works for supply, turnkey Madrid 36,56 47,507 - construction, and delivery of two liquefied natural gas storage tanks UTE Suministros Manufacture of railroad line materials Amurrio 25 887 (3) Ferroviarios 2006 UTE Desvíos 2005 Administration of railroad infrastructures Amurrio 25 2,532 - 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

38. OTHER INFORMATION

a| AVERAGE NUMBER OF GROUP EMPLOYEES BY CATEGORY

2007 2006 Unskilled workers 1,140 775 Employees 973 1,176 2,113 1,951 b| AVERAGE NUMBER OF MEN / WOMEN PER JOB CATEGORY

The breakdown by gender at the year end of group personnel is as follows:

Men Women Total Board Members 2 - 2 Top Management 5 - 5 Rest 1,909 197 2,106 1,916 197 2,113 148

c| ENVIRONMENTAL INFORMATION

The Group has taken the necessary measures to protect and improve the environment and to minimise environmental impact, if applicable, in compliance with current environmental legislation.

d| FEES OF AUDITORS AND THEIR GROUP OR RELATED COMPANIES

The fees charged in 2007 by PricewaterhouseCoopers Auditores, S.L. for audit services amounted to 313 thousand.

The fees charged in 2007 by other companies that use the PricewaterhouseCoopers name for audit services total 57 thousand.

Similarly, 15 thousand has accrued for audit services rendered by firms other than the Group’s lead auditor PricewaterhouseCoopers. ECONOMIC AND FINANTIAL INFORMATION 2007 Shared services attheGroupgave toacost of7.5million. rise Shared services years, lastseveral fact thattheorders only 85%ofthe receipts expectedarehedgedatthebeginning. the dollar/euroexchangerate. Indeed, hedgesbut duetothe have risk allthecontracts rate specific currency thaninthe advancedphases,margins andbecauseofthenegative exchangedifferences duetotheevolution of by projectswhichintheinitialphasesoftheirdevelopment theincreaseinturnover forhave newlarge lower euros 5.8million, itsProfit is6.8%. before taxmargin This profitability, whichishighinthesector, hasbeenaffected by andthatthefinancial thissegmenthasbeen incomegenerated by theadvancesfrom customers generarted oftheresultsthisactivityismadeupfinancialEBITDA income of5.8%. margin inmindthatpart Bearing turnover. theyear have Itssalesduring totalledeuros684millionwithanEBITDA ofeuros40million, andan This Segmenthasthehighestshown thegreatest growth intheentirecompany andrepresents80%ofgroup the typeofrisks, arehighly managementandprofit similarineacharea. generation risk projects. handlingprojects andliquefied fuelstorage industrial natureofthesebusiness Despitethediffering areas, threemainbusiness areas: ProjectManagement comprises Industrial power plantprojects, andgeneral mineral been inter-group. ItsEBITDA hastotalledeuros 13million, of11%. withamargin hasmadesalesofeuros118million, andSpecialisedServices As awholeeuros59millionofwhichhave Ancillary totheMiddleEast andotherzones withmajorpetro-chemicalinterests. significant exports Meltand Felguera TEDESA have CaldereríaPesada achieved excellentresultsandFelguera especially, whichhasmade Segment EBITDA over sales is17%. upofothermeasurestoachieve greatermanagementefficiency,in 2006andthestart ofManufacturing theratio out incombinationwiththeculminationofredundancyplancarried buoyancy ofthepetro-chemicalindustry Segment, whichlevels ofprofitability over hasbeenbelow thelastfew capitalcosts. years In2007, by driven the positive evolution activitiesofspecial noteinanareaundergoing istheManufacturing ofoperating In terms The mostnotable theyear events have during beenasfollows: have shown stiffgrowth inturnover andprofit. intheGroup’s andManufacturing workshops. for Industry andSpecialisedServices All threesegments Ancillary The Group’s inthreemainsegments: Projects, activitiesareperformed Industrial ManagementofLarge Integrated the qualityandquantityofengagementsenteredintoinpreviousyears. and in2007hasunequivocally boththesuccessfulnatureofitsstrategy The activityofDuroFelguera confirmed Directors’ 2007 Report AND SUBSIDIARIES DURO FELGUERA, S.A. 85 million. (euros 9million)andinterest-freeloansfor researchtotallingeuros16 million. Working capitaltotalseuros totaleuros35millionandaremadeupoffinancial borrowings leasesfor theacquisition ofbuildingsLong-term have bankborrowings increased toeuros314million, remainedstable ateuros35million. whileshort-term - ofsolvencyThe balancesheetcontinuesandliquidity. toconsolidatein terms fundshaveAvailable treasury of euros25millioneach. outafive-year contributions parity researchanddevelopment projectcomprising 2008tocarry in February - of enteredinto anagreementwiththePrincipality thatmaterialised At theendof2007DuroFelguera Asturias acquiredoffice theyear buildings DuroFelguera totallingeuros9.9millionthatarefinanced- During by leases. totalseuros1,266million. portfolio the contract - Engagementsfor theyear totaleuros1,003million, anincreaseof32%againstlastyear. At 31December - from10.5%to25.8%asaresultoftheusepreviously existingtaxcredits. hasrisen The taxrate - Growth inEBIDTA fromeuros44millionto63million. - Growth ingroupturnover fromeuros566million in2006toeuros849million2007. 149 DURO FELGUERA 07 ANNUAL REPORT ANNUAL ACCOUNTS AND CONSOLIDATED MANAGEMENT REPORT 10 FOR 2007

The Duro Felguera Group pays special attention to customer risk management, although this is done in various ways in accordance with the activity and geographic location concerned. In the Energy area, it is normal for the customers and technologies with which projects are frequently executed in a consortium, to maintain highly solvent and liquid balances, which often makes it unnecessary to obtain insurance coverage.

In the mining area particular attention is paid to the existence of loans to buyers that sufficiently and exclusively cover Duro Felguera’s collection requirements. Contract termination and supplier credit insurance is also considered.

The Duro Felguera Group has no specific special purpose vehicles and therefore all of its financial credit and risks are reflected in the consolidated balance sheet. The financing of its projects and the contribution of guarantees are carried out by contracting financial product packages that are integrated with top-tier entities for which, at times, the debt claims deriving from the specific project being financed are provided as security. There are therefore no balance sheet risks that are not process through the risk management system for each project analysed individually and approved by a risk committee. As to date there have been no large investments, there is no long- term debt that does not relate to the financing of working capital. Accordingly, the possibility of interest rate modifications having an impact is reduced to possible movements in short-term interest rates. It is therefore not deemed necessary to obtain interest rate hedges and any possible variance in financial expense is budgeted as a tolerance in project costs and is therefore taken into consideration from the start of a project.

Duro Felguera is exposed to currency exchange risks, fundamentally between the Dollar and the Euro, and to a 150 much lesser extent with respect to some emerging currencies. Special attention is paid to the treatment of these types of risks. This year the group has begun to enter into contracts with sections payable in different currencies to avoid imbalances between invoicing and costs whose currency is known before signing the contract. Moreover, in general, management attempts to ensure that contracts concluded with suppliers, to the extent possible, are denominated in the currency in which the contract between Duro Felguera and the customer is denominated. The pre-financing of working capital is also carried out in the currency of the primary contract, such that the exchange rate is known at the time the loans are obtained. For all other flows relating to two currencies, simulations are prepared at the start of projects and forwards are obtained at the date and in the amount estimated to coincide with the date and amounts estimated in both customer and supplier invoices. The Duro Felguera Group has not acquired or sold any exotic or speculative derivatives independent of actual business flows originating from plant construction. The Group therefore applies the most complete treatment possible to risks of this type but it does not acquire financial products in this area without a clear and specific hedge intention.

The environmental risk requirements established by customers in large projects and certification are very rigorous. The proper treatment of environmental circumstances forms part of product demands, for which Duro Felguera offers the highest level of quality.

At 31 December 2007 the payroll consists of 2,113 employees, of which 772 are under indefinite contracts and 1,341 are under temporary contracts. ECONOMIC AND FINANTIAL INFORMATION 2007 Duro Felguera does not hold any treasury shares and its investments in R&D during the year totalled 199 thousand. ECONOMIC AND FINANCIAL INFORMATION 2007

DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND MANAGEMENT REPORT FOR 2007 DURO FELGUERA 07 ANNUAL 11REPORT DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

152 ECONOMIC AND FINANTIAL INFORMATION 2007 DURO FELGUERA, S. A. ANNUAL ACCOUNTS AND MANAGEMENT REPORT FOR 2007

1 DURO FELGUERA, S.A. AUDITORS’ REPORT

2 DURO FELGUERA, S.A. BALANCE SHEETS INCOME STATEMENTS ACTIVITY STATEMENTS OF SOURCE AND APPLICATION OF FUNDS DIRECTORS’ REPORT 153 DURO FELGUERA 07 ANNUAL REPORT DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

DURO FELGUERA, S.A. BALANCE SHEETS AT 31 DECEMBER 2007 AND 2006 (Thousand euros)

ASSETS 2007 2006

Fixed assets 114,237 82,944

Formation expenses 78 97 Intangible fixed assets (note 4) 10,076 207 Tangible fixed assets (note 5) 13,705 5,545 Investments (note 6) 90,378 77,095

Deferred expenses 2,744 -

Current assets 370,809 269,845

154 Inventories 224 98 Debtors (note 7) 152,325 98,467 Current asset investments (note 8) 151,084 168,068 Cash at bank and in hand (note 8) 67,159 3,195 Prepayments and deferred income 17 17

TOTAL ASSETS 487,790 352,789 ECONOMIC AND FINANTIAL INFORMATION 2007

148 LIABILITIES 2007 2006

Capital and reserves (note 9) 96,371 87,622

Share capital 51,008 51,008 Share premium 3,913 3,913 Revaluation reserve 958 958 Other reserves 19,249 8,887 Retained earnings 558 338 Profit /(loss) for the year 27,826 27,619 Interim dividend (7,141) (5,101)

Deferred income (note 10) 7 751 155 Provisions for liabilities and charges (note 11) 1,603 1,246

Creditors: amounts falling due after more than one year (note 12) 30,930 12,059

Bank loans and overdrafts 13,678 1,943 Amounts owed to group companies - 9,000 Other creditors 10,232 - Public institutions, long-term 199 195 Uncalled amounts on shares held - From Group companies (note 6.b) 6,821 21 - From associated companies - 900

Creditors: amounts falling due within one year 358,879 251,111

Bank loans and overdrafts 19,159 117 Amounts owed to Group and associated undertakings (note 6.b) 50,579 35,491 Trade creditors (note 13 a) 256,100 193,725 Other non-trade creditors (note 13 b) 23,451 15,145 Provisions for liabilities and charges and other trade operations (note 14) 9,590 6,633

TOTAL LIABILITIES 487,790 352,789 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

DURO FELGUERA, S.A. INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006 (Thousand euros)

EXPENSE 2007 2006

Reduction in inventories of finished goods and work in progress 4 84 Raw materials and consumables (note 16 c) 301,952 137,564 Staff costs (note 16 d) 21,983 19,969 Fixed asset depreciation 418 263 Change in trade provisions 2,957 (1,486) Other operating charges: -External services 76,826 53,725 -Taxes 269 298

156 Operating profit 5,363 1,933 Net financial income (note 17) 18,584 18,028

Profit from ordinary activities 23,947 19,961

Net extraordinary income (note 18) 5,166 4,152

Profit before taxes 29,113 24,113

Corporate income tax (Note 15) (1,287) 3,588 Other taxes - (82)

Profit for the year 27,826 27,619 ECONOMIC AND FINANTIAL INFORMATION 2007 INCOME 2007 2006

Net turnover: - Sales 403.968 208.823 - Provision of services 5.516 4.179

Other operating income: - Sundry and other ordinary income 12 13 - Operating grants 276 335

157 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

1. ACTIVITIES

Duro Felguera, S.A. (the Company) was incorporated as a Spanish public limited company ("sociedad anónima") for an indefinite period on 22 April 1900 under the name Sociedad Metalúrgica Duro-Felguera, S.A. On 25 June 1991 its name was changed to Grupo Duro Felguera, S.A. and on 26 April 2001 the current name was adopted. Its registered office for corporate and tax purposes is in Oviedo, calle Marqués de Santa Cruz, 14.

The Company is mainly engaged in the metal, boiler making, smelting and capital goods industries, engaging in construction, manufacturing and fitting work under turnkey contracts, as well as marketing, distribution, construction and installation services involving energy obtained from solid and liquid fuels. The Company’s objects also cover the promotion, formation, extension, development and modernisation of industrial, commercial and service companies in Spain and abroad, provided such companies are engaged in any of the activities listed above. It may also acquire and hold fixed or variable income securities issued by all kinds of entities.

2. BASIS OF PRESENTATION

a| TRUE AND FAIR VIEW

158 The accompanying annual accounts have been prepared based on the Company’s accounting records which have been kept in Euros since 1 January 2001 and are presented in accordance with the Spanish General Accounting Plan and its adaptation to the construction sector, such that they reflect a true and fair view of the Company’s equity, financial situation and results of its operations.

These annual accounts, which have been prepared by the Directors of the Company, will be submitted for the approval of the General Meeting and it is expected that they will be approved without any modification being made.

b| ACCOUNTING PRINCIPLES

The accompanying annual accounts have been prepared in accordance with the accounting principles and standards generally accepted in Spain as described in note 3. No mandatory accounting principle that has a significant effect on the annual accounts has been omitted.

c| GROUPINGS OF ITEMS

For clarity, the accounts are presented in a summarised form. When appropriate, an analysis is provided in ECONOMIC AND FINANTIAL INFORMATION 2007 the relevant note to the accounts.

d| CONSOLIDATED ANNUAL ACCOUNTS

The Company is the parent of a group of companies in accordance with Royal Decree 1815/1991/20 December and is therefore required to present consolidated accounts.

For clarity, the directors have chosen to present the consolidated accounts separately. 3. ACCOUNTING POLICIES

a| FORMATION EXPENSES

Formation, start-up and capital increase expenses are capitalised at acquisition price and amortised on a straight-line basis over five years. If the circumstances that permitted the capitalisation of the expenditure change, the unamortised portion is expensed in the year of change.

b| INTANGIBLE FIXED ASSETS

This heading relates entirely to computer applications which are stated at acquisition or production cost and they are amortized on a straight-line basis over four years, the period over which they are expected to be used. Maintenance costs relating to computer applications are expensed at the time they are incurred.

c| TANGIBLE FIXED ASSETS

Tangible fixed assets are stated at acquisition or production cost, plus any of restatements recorded in accordance with the provisions of relevant legislation, among which is Royal Decree-Law 7/1996 (7 June). 159 Capital gains or net increases in value resulting from the restatement operations are depreciated over the remaining useful life of the restated assets.

Repair and maintenance costs are expensed in the year in which they are incurred. Replacements or renewals of tangible fixed assets are recorded as an asset and the items that are replaced or renewed are written off for accounting purposes.

Costs relating to extensions, modernisation or improvements which increase productivity, capacity or efficiency, or extend the useful lives of the assets are capitalised as an increase in the cost of the assets concerned.

Tangible fixed assets are depreciated on a straight-line basis over the estimated useful lives of the assets concerned at the following rates: The useful lives applied by the Company are as follows:

Years

Buildings 17 to 50 Plant and machinery 6 to 17 Fixtures, fittings, tools and equipment 8 to 20 Other non-current assets 4 to 20 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

d| FINANCIAL INVESTMENTS

Investments held in trading portfolios are stated at the lower of cost and market value. The market value for each type of investment is calculated as follows:

i) Holdings in the share capital of Group or associated companies:

Attributable portion of net worth of the holding, adjusted to take into account any latent capital gains existing when the holding was acquired which still exist on the balance sheet date. When necessary, provision is made to reflect changes in the capital and reserves of the investee company.

ii) All other holdings:

- Officially listed securities: the lower of the average listed price for the last quarter of the financial year and the price at the year end.

- Unlisted securities: on the basis of the attributable portion of net worth of the holding as reflected in the latest available annual accounts.

Losses between cost and market value at the year end are recorded under the account "Investments- 160 Provisions". Dividends received are recognised as income when their distribution is approved by the Board of Directors or Shareholders.

The Company has a majority stake in the share capital of certain companies and holds interests equal to or exceeding 20% in the share capital of others. The accompanying annual accounts refer to the Company on an individual basis since in accordance with current legislation, the Company’s Directors present separate consolidated annual accounts for 2007.

e| INVENTORIES

Raw and auxiliary materials and consumable and replacement materials are stated at the lower of their average acquisition cost and market price.

Finished goods, semi-finished goods and work-in-progress are stated at their average production cost, which includes the cost of raw materials and other materials consumed, labour and direct and indirect manufacturing expenses. The cost of these inventories is written down to their net realisable value if lower than production cost. ECONOMIC AND FINANTIAL INFORMATION 2007 Obsolete and defective items are adjusted, based on estimates, to bring them into line with their potential realisable value.

f| ACCOUNTS AND TRADE BILLS RECEIVABLE

Accounts receivable are stated in the balance sheet at their nominal value. However, all necessary adjustments have been recorded based on an individual analysis of each debtor and the relevant provisions have been recorded for the risk of potential insolvency with respect to collection of various assets.

g| NON-TRADE DEBTORS

Non-trade debtors are stated at the amount extended.

h| TRANSACTIONS AND BALANCES IN FOREIGN CURRENCY

Transactions denominated in foreign currency are stated at their equivalent value in euros, using the exchange rates in force at the date the transaction is carried out. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in the profit and loss account when they arise.

At the end of each year, accounts payable and receivable in foreign currency at the yearend are stated in euros at exchange rates in force at that time or at hedged rates and unrealized net losses on exchange are recognized as an expense, as calculated for groups of currencies with similar maturity dates and market performance, while all unrealized net gains calculated in the same manner are deferred until they are realized. i| CURRENT ASSET INVESTMENTS

Current asset investments are stated at the lower of acquisition cost and market value. Market value of current asset investments is determined in the same manner as for fixed asset investments. j| COMMITMENTS FOR PENSIONS AND SIMILAR OBLIGATIONS

The Company contracted commitments with certain retired and current personnel, employees of the discontinued coal activity, for the monthly supply of a certain amount of coal. These commitments are supplemented by those assumed with certain retired personnel that were employed by the Company up until the time of retirement. The amounts of these provisions have been calculated in accordance with actuarial studies performed by an 161 independent actuary and have applied the PER2000P mortality tables, a technical interest rate of 3.67% and consumer price index increases totalling 2.5% per year.

In addition, the Company’s collective wage agreement includes certain awards to be paid to employees at the time they have been employed for 25 and 35 years. The amounts accrued in this respect have been covered by a provision recorded based on the best estimates available. k| SEVERANCE INDEMNITIES

In accordance with current employment legislation, the Company is required to pay indemnities to employees who, under certain conditions, are dismissed from the Company. The Company’s Directors do not expect there to be any dismissals in the future, for which reason no provision in this respect has been included in the annual accounts. l| CORPORATE INCOME TAX

Corporate income tax expense for the year is calculated based on reported profits before taxes, as adjusted upward or downward, as appropriate, by permanent differences arising with respect to taxable income, which is considered to be the tax base, less any tax credits or deductions and excluding any withholdings and prepayments made.

The tax credit deriving from deductions relating to investments in new fixed assets and, if appropriate, job creation, are considered to reduce the corporate income tax expense in the year they are applied.

The Company is subject to corporate income tax under the Group of companies tax system, together with the companies forming part of its group. In accordance with this system, the tax payable is calculated based on the Group’s consolidated results.

In 2006 Law 35/2007 on Personal Income Tax and partial modification of the Spanish Corporate Income Tax Act, Non-Resident Income Tax Act and Wealth Tax, came into force which reduced the current 35% rate to 32.5% for the years commencing as from 1 January 2007 and to 30% for years commencing as from 1 January 2008. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

Accordingly, the Company has adjusted deferred tax assets and liabilities based on their estimated time of reversal.

m| CREDITORS

Long and short-term creditors are recorded at repayment value.

n| OTHER PROVISIONS FOR LIABILITIES AND CHARGES

These provisions also relate to guarantees provided to third parties and other items. In order to create these provisions, the Company follows the policy of estimating the payments to be made in each year in this respect and record the appropriate provisions by charging the profit and loss account for that year.

o| CLASSIFICATION OF CREDITORS AS SHORT OR LONG-TERM

In the balance sheet creditors are classified in accordance with the Spanish General Accounting Plan according to their maturity dates at the year end. Amounts falling due within twelve months are recorded as short-term and amounts falling due after one year as long-term.

p| RECOGNITION OF PROFITS FROM LONG-TERM AGREEMENTS 162 The Company follows the policy of valuing long-term construction projects at the specific production costs incurred in each project or under each agreement. In turn, the relevant profit is recognised on an extent of completion basis, provided that reasonable and reliable estimates of budgeted, income, costs and extent of completion are available and there are no abnormal or extraordinary risks concerning the development of the project. As a general rule no profits are recognised if 10% completion has not been attained, although depending on the characteristics of each project, this may vary. In the case of contracts generating losses, they are recorded as soon as they are known.

q| INCOME AND EXPENSE

Income and expense are recorded on an accruals basis, i.e. in the period in which the income or expense deriving from the goods or services in question is earned or incurred, rather than the period in which the cash is actually received or disbursed.

For reasons of prudence, however, the Company only records profits realised at the year end, while foreseeable risks and potential losses are recorded as soon as they are known.

r| ENVIRONMENT ECONOMIC AND FINANTIAL INFORMATION 2007 The costs incurred on the acquisition of systems, equipment and installations intended to eliminate, mitigate or control the impact that the Company’s ordinary business could have on the environment are considered to be investments in fixed assets. All other costs relating to the environment, other than those concerning the acquisition of fixed assets, are recorded as an expense in the year incurred.

s| ACCOUNTING FOR JOINT VENTURES

Certain work is executed through two or more companies operating in a joint venture. At 31 December 2007 the Company participates in several joint ventures (note 20 a), whose balances at that date are included in the Company's accounts on an equity basis, in accordance with accounting principles generally accepted in Spain.

When recording the results for the work executed in joint ventures with other companies the same policy applied by the Company for its own work is applied, as is explained in point p) above. t| INTEGRATION OF THE BRANCH OFFICES

The integration in 2007 of the branch offices in Mexico and Italy, called Duro Felguera S.A, Sucursal México and Duro Felguera S.A., Stabile Organizazione in Italia, into the Company’s annual accounts for 2007 has reflected, in accordance with current legislation, all balances and transactions (note 20 b).

4. INTANGIBLE FIXED ASSETS

Movements in the accounts included under intangible fixed assets in 2007 are as follows:

Thousand euros Net book Cost Depreciation /amortization value Opening Closing Opening Closing Opening Closing balance Additions Disposals balance balance Additions Disposals balance balance balance Assets acquired under finance 163 leases - 9,937 - 9,937 - 72 - 72 - 9,865

Computer software 1,269 110 - 1,379 1,062 106 - 1,168 207 211 1,269 10,047 - 11,316 1,062 178 - 1,240 207 10,076

On 2 August 2007, the company Santander de Leasing, S.A., E.S.C. (lessor) and Duro Felguera, S.A. (lessee) signed a finance lease agreement for various buildings owned by the former (offices in c/ Rodríguez Sampedro, 5 de Gijón; and c/ González Besada, 25, c/ Marqués de Santa Cruz, 14 y c/ Santa Susana, 20, respectively in Oviedo) which, until said date, Duro Felguera, S.A. had leased under an operating lease to Hispamer Renting, S.A. (former owner). At the date of expiry of this finance lease agreement, 2 August 2017, Duro Felguera, S.A. plans to exercise the purchase option of Euros 1,447,500.

This finance lease operations has the following main costs:

- Land: 4,632 - Buildings: 5,018 9,650 (including the purchase option) - Financial cost: 2,942 (opening commission of 0.30% and a differential instalment of annual Euribor + 0.5%)) 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

5. TANGIBLE FIXED ASSETS

Movements in the accounts included under tangible fixed assets in 2007 are as follows:

Thousand euros

Plant Fixtures, Other Prepayments and Land and and fittings, tools fixed assets under buildings machinery and equipment assets construction Total COST Opening balance 4,722 95 861 992 786 7,456 Additions 3,757 - 58 365 4,216 8,396 Disposals (9) - - (6) - (15) Transfers 786 - - - (786) -

Closing balance 9,256 95 919 1.351 4,216 15,837

DEPRECIATION Opening balance (672) (95) (508) (637) - (1,912) Appropriations (41) - (38) (142) - (221) 164 Disposals - - - 1 - 1

Closing balance (713) (95) (546) (778) - (2,132)

NET BOOK VALUE Opening balance 4,050 - 353 355 786 5,545 Closing balance 8,543 - 373 573 4,216 13,705

On 15 February 2007 Duro Felguera acquired from the Federación de Entidades Inmobiliarias, S.A. a series of estates located in Latores (Oviedo), commonly known as “Colegio Peñaubiña) for Euros 3.7 million. At the date of formulation of these accounts, no firm decision has been taken on the final use of these assets in the future.

Fixed assets under construction in 2007 includes approximately Euros 4,216 thousand for the costs incurred to date of a total expected amount of Euros 10,400 thousand relating to a turnkey contract that the parent company has been awarded for the construction of the “New Centre for Engineering, R+D+I, Quality and Development of Industrial Plants and Equipment” that Duro Felguera, S.A. is building on municipal lot no. 23 in the Scientific and Technological Estate of Gijón, acquired last year for Euros 786 thousand from the City Council of Gijón.

a| REVALUATIONS ECONOMIC AND FINANTIAL INFORMATION 2007

The Company has restated tangible fixed assets in accordance with various Laws, including Royal Decree – Law 7/1996/7 June.

The accounts affected by the restatement established under Royal Decree – Law 7/1996 (7 June), and the effect at 31 December 2007, are as follows:

Thousand euros Accumulated Net Additions depreciation Disposals effect Land and buildings 902 (76) (564) 262 Plant and machinery 6 (6) - - Fixtures, fittings, tools and equipment 70 (51) (18) 1 Other fixed assets 9 (9) - -

987 (142) (582) 263 This restatement has had little effect on depreciation for the year due to the fact that the net effect in the period basically relates to land.

b| FULLY DEPRECIATED ASSETS

At 31 December 2007, fully-depreciated assets with a total original or restated cost of 979 thousand are still in use.

c| INSURANCE

The Company has taken out a number of insurance policies to cover risks relating to tangible fixed assets. At 31 December 2007 the Directors consider that insurance coverage is sufficient.

d| COMMITMENTS

At 31 December 2007 the Company has commitments to purchase fixed assets totalling 5,788 thousand.

6. INVESTMENTS AND GROUP AND ASSOCIATED COMPANIES

The breakdown of movements during 2007 in Company investments is as follows: 165

Thousand euros Opening Additions and Transfer to Closing balance allocations Disposals short-term balance COST Shareholdings in Group companies (note 6 a) 85,808 9,650 (14,006) - 81,452 Loans to Group undertakings 87 - (87) - - Shareholdings in Associated companies (note 6 a) 2,329 4,894 (931) - 6,292 Long-term securities portfolio 366 - - - 366 Other loans (note 6 d) 384 692 (53) - 1,023 Long term deposits and guarantees 2,581 - (2,561) - 20 Public institutions, long-term (note 15) 4,686 861 (570) - 4,977

96,241 16,097 (18,208) - 94,130

PROVISIONS (18,984) (310) 18,984 - (310) For shareholdings in Group companies (note 6 a) (84) - 84 - - For insolvent loans to Group companies (68) (3,407) 36 - (3,439) For shareholdings in Associated companies (note 6 a) (10) - 7 - (3) For Long-term securities portfolio (19,146) (3,717) 19,111 - (3,752) 77,095 90,378

The addition in shareholdings in Group companies relates basically to the incorporation of the company “Felguera Biodiesel Gijón, S.A.”. This addition represents an amount of Euros 9,065 thousand.

The addition in shareholdings in associated companies relates to the contributions of the Economic Interest Associations (AIE) “Naviera Tebas, AIE” and “Naviera Delfos, AIE”. At the 2007 year end a provision has been set up for Euros 2,057 thousand for the valuation of these shareholdings.

On the other hand, we should point out that the shareholding in the group company “Duro Felguera México, S.A. de CV” has been sold, leading to a write off of cost value of Euros 13,996 thousand and the provision of Euros 13,955 thousand. This operation has generated a profit of Euros 434 thousand. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007 48 16 922 105 426 (23) (143) (372) (641) 1 , 087 9 , 018 8 , 567 1 , 140 28 , 636 12 , 053 34 , 820 book value Proportional - 2 13 22 249 (77) (385) (761) 9 , 894 3 , 508 4 , 117 9 , 286 1 , 245 1 , 415 Results (3 , 625) (1 , 309) - - - - - 284 361 307 (46) (99) (1) (517) 5 , 858 5 , 741 13 , 867 (1 , 031) (2 , 542) Reserves 9 3 1 1 at 31 December 2007 90 120 174 152 481 150 2 , 460 2 , 104 3 , 000 19 , 773 19 , 793 14 , 860 Information regarding companies Share capital - 8 2 9 47 16 219 859 264 Net 8 , 516 4 , 927 9 , 065 1 , 499 1 , 338 2 , 853 26 , 673 30 , 553 81 , 142 Thousand euros ------(32) (310) (310) (990) (1 , 350) (1 , 067) (3 , 439) for Provision Book value decline in value 8 2 9 47 48 219 859 574 Cost 1 , 350 2 , 489 2 , 405 6 , 292 8 , 516 4 , 927 9 , 065 26 , 673 30 , 553 81 , 452 166 60% 52% 90% 65% 61% 32% 45% 49% 49% 100% 100% 100% 100% 100% 81 . 67% 99 . 80% % interest ECONOMIC AND FINANTIAL INFORMATION 2007 Activity and Registered Office Capital goods (La Felguera) Finance (Oviedo) Real estate (La Felguera) and mkaintenance of turbines (Langreo) Assembly Fuel and gas storage equipment (Madrid) (La Felguera) Investments energiesRenewable Construction of industrial and assembly projects (Peru) and maintenance of electricity Assembly plants (Argentina) operation and management, development, Promotion, maintenance of all types facilities related to biodiesel production (Gijón) Industrial electrical engineering and assembly Engineering (Mexico) group Total (Gijón) Environment construction and repair of tunneling machines (Madrid)Engineering, Martime leases (Canary Islands) Martime leases (Canary Islands) associates Total (2) shareholdings Direct companies : Group S.A. Duro Felguera Plantas Industriales, S.A. Acervo, S.A. Inmobiliaria de Empresas Langreo, S.A. Montajes de Maquinaria de Precisión, S.A. Felguera I.H.I., S.A. Felguera Investment, S.A. Felguera Renovables S.A.C. del Perú, Turbogeneradores S.A. ServiciosArgentinos, Energéticos S.A. Felguera Biodiesel Gijón, S.L. Montajes Eléctricos Industriales, de CV S.A. e Ingeniería Pycor, Proyectos As sociated companies : S.A. Zoreda Internacional, MHI-Duro Felguera AIE Tebas, Naviera AIE Naviera Delfos, a| SHAREHOLDINGS IN GROUP AND ASSOCIATED COMPANIES ASSOCIATED AND a| SHAREHOLDINGS IN GROUP of shareholdings and related information The breakdown at 31 December 2007 is as follows: Thousand euros Information regarding companies at 31 December 2007 Share Reserves Proportional Activity and Registered Office % interest capital (1) Results book value

Indirect shareholdings (3) Forjas y Estampaciones Asturianas, S.A. Material for tunnels and mines (Llanera) 100% 102 98 7 207 Felguera Grúas y Almacenaje, S.A. Engineering of lifting equipment (La Felguera) 100% 902 189 147 1,238 Felguera Montajes y Mantenimiento, S.A. Industrial assembly (Langreo) 100% 1,803 (3,518) 4,891 3,176 Felguera Rail, S.A. Manufacture and assembly of railway apparatus (Mieres) 77.52% 7,997 (731) 350 5,904 Pontonas del Musel, S.A. Operation of shipping business (Gijón) 70% 510 33 9 386 Felguera Melt, S.A. Smelting (La Felguera) 100% 13,898 2,169 3,000 19,067 Felguera Revestimientos, S.A. Refractory surfaces (Langreo) 100% 60 (349) 585 296 Técnicas de Entibación, S.A. Manufacture of shoring materials (Llanera) 100% 3,936 (318) 1,716 5,334 Felguera Parques y Minas, S.A. Engineering of mining equipment (La Felguera) 100% 902 317 1,452 2,671 Felguera Calderería Pesada, S.A. Pressure vessels and large boilers (Gijón) 100% 7,852 7,822 4,487 20,161 Felguera Construcciones Mecánicas, S.A. Manufacture of mechanical equipment (Langreo) 100% 5,507 (888) 1,230 5,849 Turbogeneradores de México, S.A. de C.V. Assembly and maintenance of turbines (Mexico) 100% 5 8 - 13 Felguera Tecnología de la Información, S.A. Development of management computer software (Llanera) 60% 90 436 163 413 Felguera Calderería Pesada Servicios, S.A. Assembly and design of metal installations (Gijón) 100% 301 40 (60) 281 Secicar, S.A. Fuel marketing (Granada) 17.69% 3,005 (1,307) 301 589 Duro Metalurgia de México, S.A. de C.V. Trade and industry relating to the capital goods sector (Mexico) 100% 65 Ingeniería de Proyectos Medioambientales, S.A. Construction and explotation of chlorohydrate acid regeneration plants and (63) (1) 1 sale of regenerated CHL and ferrous oxide (La Felguera) 50% 120 223 234 289 Equipamientos Construcciones y Montajes, S.A. de C.V. Building and staging of Industrial Proyects 100% 7,354 (7,640) (6) (292) Duro Felguera Power, S.A. de C.V. Assembly and maintenance of boilers and turbo-generators for the energy sector (Mexico) 100% 6 (10) (1) (5) Operaciones y Mantenimiento, S.A. Launch, operation and maintenance of Thermal Plants (Langreo) 100% 120 (533) 814 401 Kepler-Mompresa, S.A. de C.V. (4) Assembly of turbines and civil works (Mexico) 50% 4 11 - 8 Sociedad de Servicios Energéticos Iberoamericanos, S.A. (4) Assembly and maintenance of electricity plants (Colombia) 25% 26 (9) - 6 Petróleos Asturianos, S.L. Storage and distribution of oil products (Gijón) 19.80% 503 (53) (22) 85

1| These data reflect situation after deducting interim dividends paid during the year. 2| Consolidated information included in the direct shareholding. 3| The Company directly and indirectly participates in joint ventures, which are integrated into the comapnies on an equity basis. 4| Dormant company. Indirect shareholdings in group companies in which the Company holds a direct stake:

Turbogeneradores del Perú, S.A.C.: 10.00% (total: 100%) Proyectos e Ingeniería Pycor, S.A. de C.V.: 0.20% (total: 100%) Zoreda Internacional, S.A.: 8.00% (total: 40%) 167 DURO FELGUERA 07 ANNUAL REPORT DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007 ------240 1 , 984 9 , 500 3 , 350 15 , 074 15 , 074 received Dividends ------3 7 17 17 35 60 207 184 791 224 342 2 , 132 8 , 704 5 , 369 1 , 063 1 , 038 1 , 243 5 , 076 33 , 850 50 , 579 13 , 788 16 , 712 10 , 296 creditors Short-term ------1 5 16 6 , 799 6 , 821 6 , 821 creditors Long-term Balances ------9 4 8 7 75 41 16 51 51 42 385 243 135 132 130 345 568 149 148 2 , 488 1.267 1 , 170 debtors Short-term ------1 1 1 7 9 95 10 122 122 694 218 396 2 , 221 2,055 2 , 125 5 , 984 6 , 948 7 , 587 8 , 448 loans 61 , 232 28 , 180 32 , 930 13 , 645 10 , 665 Short-term

168 Thousand euros ------1 7 2 7 33 44 43 359 179 572 396 499 1 , 071 Financial expense ------37 75 12 99 15 38 175 671 102 985 534 190 963 1 , 948 income Financial ------Transactions 3 5 48 48 914 680 293 778 3 , 118 3 , 238 3 , 677 9 , 556 12 , 682 67 , 987 12 , 221 33 , 000 43 , 084 12 , 629 expenses Supplies and other operating ECONOMIC AND FINANTIAL INFORMATION 2007 ------6 3 98 75 16 42 44 44 17 89 715 505 246 453 699 369 318 5 , 342 1 , 648 2 , 796 2 , 502 income Turnover and Turnover other operating b| TRANSACTIONS AND BALANCES WITH GROUP, ASSOCIATED AND RELATED COMPANIES AND BALANCES WITH GROUP, TRANSACTIONS b| are as as the balances maintained at 31 December 2007, as well of the transactionsAssociated companies (direct or indirect interest), The breakdown carried out in 2007 with Group and follows: 1| Associated companies 1| Gr ou p Companies : shareholding: a ) Direct S.A. Felguera I.H.I., S.A. Acervo, S.A. Inmobiliaria de Empresas Langreo, S.A. Felguera Investment, S.A. Duro Felguera Plantas Industriales, S.A. Montajes de Maquinaria de Precisión, de C.V. S.A. Duro Felguera México, S.A.C. del Perú, Turbogeneradores S.A. Felguera Renovables, S.A. Felguera Biodiesel Gijón, S.L. Montajes Eléctricos Industriales, S.A. ServiciosArgentinos, Energéticos de C.V. S.A. e Ingeniería Pycor, Proyectos : shareholding b) Indirect de C.V S.A. Duro Metalurgia de México, de C.V. S.A. Técnica, Ingeniería S.A. Almacenaje, Felguera Grúas y S.A. Felguera Montajes y Mantenimiento, S.A. Felguera Revestimientos, S.A. Técnicas de Entibación, S.A. Felguera Construcciones Mecánicas, S.A. Felguera y Minas, Parques S.A. Felguera Calderería Pesada, S.A. Felguera Melt, S.A. Servicios, Felguera Calderería Pesada S.A. Operación y Mantenimiento, S.A. de la Información, Tecnologías Felguera S.A. Felguera Raíl, S.A. del Musel, Pontones de CV S.A. Construcciones y Montaje, Equipamientos, Associated companies : Related and S.A. TSK Electrónica y Electricidad, (1) S.A. Zoreda Internacional, (1) S.A. MHI-Duro Felguera, S.A. Arside Construcciones Mecánicas, S.A. Weserhütte, PHB The balances included in the above tables fundamentally represent accounts payable and receivable between Duro Felguera, S.A. and Group companies for current accounts and trade balances, as well as loans and credit granted to certain group companies, which accrue market interest. The above-mentioned current accounts, loans and credit facilities bore interest in 2007 at approximately 4.8% per year for debtor balances and 4.15% per year for creditor balances.

c| LONG-TERM SECURITIES PORTFOLIO

The balances included under this heading relate to small shareholdings in companies and other organisations.

d| OTHER LOANS

Set out below is an analysis of the annual maturity dates of the balances included in Other loans:

Maturing in Thousand euros 2009 340 2010 350 2011 18 2012 and beyond 315 169

Less short-term portion - Total long-term 1,023

These balances basically relate to loans to personnel and other non-trade receivables.

7. DEBTORS

This heading in the attached balance sheet at 31 December 2007 breaks down as follows: Thousand euros 2007 2006 Trade debtors 116,445 84,663 Sales pending certification 19,707 89 Group and associated companies (note 6 b) 2,488 1,453 Sundry debtors 879 1,395 Public institutions (note 15) 13,656 11,915

153,175 99,515 Less provisions (850) (1,048) 152,325 98,467

The breakdown of trade debtors at the end of 2007 is as follows:

Thousand euros Domestic 88,087 Foreign 28,358 116,445 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

Of the total trade debtor amount, approximately 27,998 thousand are contributed by joint ventures in which the Company participates (see note 20 a). The breakdown of short-term trade debtors, in foreign currency, is as follows:

Equivalent value in Currency thousand euros

Mexican Pesos 85 US Dollars 130 215

8. CURRENT ASSET INVESTMENTS

a| This heading in the attached balance sheet at 31 December 2007 breaks down as follows:

Thousand euros 2007 2006 Loans to group and associated companies (note 6 b) 61,232 60,388 170 Short-term securities portfolio 89,325 107,374 Other loans 527 316 151,084 168,078

“Short-term securities portfolio” mainly includes promissory deposits in Euros. The interest accrued by these instruments has ranged between 3.64% and 5.25%.

b| TREASURY

At 31 December 2007, the total balance of Euros 67,159 thousand includes current bank accounts with Joint Ventures remunerated at high interest rates by the banking market at the end of 2007 totalling approximately Euros 64,567 thousand.

9. CAPITAL AND RESERVES

Movements in the accounts included under Capital and reserves are as follows:

Thousand euros ECONOMIC AND FINANTIAL INFORMATION 2007 Share Share Revaluation Reserves Retained Profit/ (loss) Interim capital premium reserves (note 9 d) earnings for the year dividend Total Opening balance 51,008 3,913 958 8,887 338 27,619 (5,101) 87,622

Distribution of 2006 profits: - to dividends - - - - - (17,037) 5,101 (11,936) - to reserves - - - 10,362 (10,362) - - - to retained earnings - - - - 220 (220) - - Profit for the year - - - - - 27,826 27,826 Interim dividend ------(7,141) (7,141)

Closing balance 51,008 3,913 958 19,249 558 27,826 (7,141) 96,371 a| SHARE CAPITAL

At 31 December 2007 the Company’s share capital consisted of 102,016,601 fully-subscribed and paid shares represented by book entries, each with a par value of 0.50. All the shares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the same voting and dividend rights.

At 31 December 2007, according to data submitted to the Spanish National Securities Market Commission (CNMV), the following companies hold an interest of 5% or more in the Company:

Shareholder % direct interest

Inversiones Somió, S.R.L. 22.724 % Residencial Vegasol, S.L. 19.814 % TSK Electrónica y Electricidad, S.A. 10.010 % Ingeniería, Montajes y Construcciones, S.A. 9.530 % Construcciones Termoracama, S.L. 6.787 % Cartera de Inversiones Melca, S. L. 6.327 % Liquidambar Inversiones Financieras, S.A. 6.000 % 171 Share capital was increased in prior years through the application of the following reserves:

Thousand euros

Adjustment under Royal Decree – Law 12/1973 753 Budget Act restatement of 1979 8.989 Budget Act restatement of 1983 17,573

27,715

b| REVALUATION RESERVE

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 freely available reserves provided that the capital gain has been realised. The part of the capital gain relating to depreciation that has been recorded in the accounts and capital gains on restated assets which have been transferred or written off is deemed to have been realised. Should the balance in this account be used for any purpose other than those defined by Royal Decree-Law 7/1996, the balance will become taxable.

c| SHARE PREMIUM ACCOUNT

The balance of the account “Share premium” derives from the share capital increases carried out in July 1998 and July 1999.

The Spanish Companies Act expressly permits the use of share premium to increase share capital and it does not establish any specific restriction on the availability of this balance. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

d| RESERVES

Movements in Reserves during the year are set out below:

Thousand euros Conversion of Legal Voluntary share capital reserve reserve into euros Other Total Opening balance 6,114 2,692 75 6 8,887 Distribution of 2006 profits 2,762 7,600 - - 10,362

Closing balance 8,876 10,292 75 6 19,249

Legal reserve

Appropriations to the legal reserve are made in compliance with Article 214 of the Spanish Companies Act, 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.

172 The legal reserve is not available for distribution. Should it be used to offset losses in the event of no other reserves being available, it must be replenished out of future profits.

e| RESTRICTIONS ON DIVIDEND DISTRIBUTION

The reserves described in earlier sections of this note as being available for distribution, as well as the distribution of profits for the year, are subject to the following overriding restrictions:

- Dividends may not be distributed if by so doing the balance in reserves is reduced to an amount lower than the aggregate unamortised cost of formation expenses.

f| PROPOSED DISTRIBUTION OF RESULTS

The proposal to be presented to the General Meeting regarding the distribution of 2007 profit and loss is as follows: Thousand euros Available for distribution Profit/ (loss) for the year 27,826 Voluntary reserves 4,104 ECONOMIC AND FINANTIAL INFORMATION 2007 31,930 Distribution Legal reserve 1,325 Dividends 30,605 31,930

g| INTERIM DIVIDEND

In accordance with the Resolutions adopted by the Board of Directors during the year, the distribution of interim dividends totalling 7,141 thousand to shareholders was approved and the amount was paid in full at 31 December 2007.

This amount did not exceed the results profits obtained since the end of the previous period, after deducting the estimated corporate income tax payable on those results, as results down in Article 216 of the Spanish Companies Act of 27 December 1989. The provisional financial statements prepared in accordance with legal requirements that revealed the existence of sufficient liquidity to distribute interim dividends were as follows:

Thousand euros Forecast of distributable 2007 profits Projected profits net of taxes at 31.12.07 27,500 Estimated distributable 2007 profits 24,750 Interim dividend payable 7,141

Forecast of cash resources for the period 30.11.07 to 30.11.08 Cash at bank and in hand at 30.11.07 105,041 Projected collections 210,296 Projected payments including interim dividend 292,773 Projected cash at bank and in hand at 30.11.08 22,564

10. DEFERRED INCOME Movements in the accounts included under deferred income are as follows: 173

Thousand euros Opening balance 751 Additions 7 Taken to profit and loss (Note 18) (726) Exchange gains released to profit and loss (25) Closing balance 7

In 2007 the Company wrote off deferred income of gains from the sale and lease-back of certain buildings under a private agreement concluded on 28 December 1998.

11. PROVISIONS FOR LONG-TERM LIABILITIES AND CHARGES

The balances at 31 December 2007 and movements in 2007 in this balance sheet heading were as follows:

Thousand euros

Opening balance 1,246 Additions 462 Disposals (105) Closing balance 1,603

The provision existing at 31 december 2007 alludes mainly to the accrual of future commitments with active and retired personnel for the monthly supply of a certain amount of coal. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

12. CREDITORS FALLING DUE AFTER MORE THAN ONE YEAR

a| ANALYSIS BY MATURITY DATE

The maturity dates for non-trade creditors are as follows: Thousand euros Bank loans Uncalled Other non- and amounts on trade overdrafts shares held creditors

2008 19,159 - - 2009 3,778 - - 2010 1,114 - 266 2011 1,114 - 853 2012 and beyond 7,672 - 9,113 Undefined - 6,821 - 32,837 6,821 10,232 Less: short-term part (19,159) - - 174 Total long-term 13,678 6,821 10,232

b| BANK LOANS AND OVERDRAFTS

As at 31 December 2007 the undrawn amount available in credit facilities, long-term, totals Euros 52,536 thousand. The average interest rate on these credit faciliteis is 3-month Euribor + 0.45%.

13. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

a| TRADE PAYABLES

Thousand euros 2007 2006 Creditors for purchases and services received 99,540 66,406 Customer prepayments 156,560 127,319

256,100 193,725 ECONOMIC AND FINANTIAL INFORMATION 2007 b| OTHER NON-TRADE CREDITORS Thousand euros 2007 2006 Public institutions (note 15) 15,077 11,787 Accrued wages and salaries 2,754 3,275 Other liabilities 5,620 83

23,451 15,145 14. PROVISIONS FOR LIABILITIES AND CHARGES AND OTHER TRADE OPERATIONS

Movements in this heading during 2007 are as follows: Thousand euros

Provision for Other guarantees provisions Total Opening balance 4,627 2,006 6,633 Appropriations 4,440 2,727 7,167 Reversals and applications (2,415) (1,795) (4,210)

Closing balance 6,652 2,938 9,590

The balance recorded under the heading “Provision for guarantees” relates mainly to provisions formed to comply with contractual conditions regarding guarantees and liability which, as the case may be, would have to be borne by the Company once the different works were terminated, and, moreover, taking into account the historical evolution of the amounts that have been borne in the past for contingencies of this type.

15. CORPORATE INCOME TAX AND TAX SITUATION 175 The breakdown of the balances recorded at 31 December under Public Institutions is as follows:

Thousand euros 2007 2006 Debtor balances (note 7): Deferred tax assets 4,977 4,686 Value added tax Domestic VAT refundable 6,117 4,966 Foreign VAT refundable 2,918 1,083 Input VAT pending accrual 4,107 3,570 International double taxation deductions - 320 General Canary Island Tax refundable 383 86 Current year corporate income tax refundable - 1,862 Other 131 38 Less long-term deferred tax assets (note 6) (4,977) (4,686) 13,656 11,915 Creditor balances (note 13 b): Value added tax: Domestic VAT payable (5,353) (2,254) Foreign VAT payable (39) (250) Output VAT pending accrual (7,094) (8,310) Output General Canary Island Tax pending accrual 1,404 - General Canary Island Tax payable (74) (170) Personal income tax withholdings (408) (281) Capital gains withholdings (395) (249) Social security organisations (273) (234) Other (37) (39) (15,077) (11,787) 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

For corporate income tax purposes the Company is taxed based on the consolidated profit obtained by Duro Felguera Group. For all other taxes, fees and charges for which the Company is liable the tax base is calculated individually.

The special consolidated tax scheme for groups of companies requires that the entire consolidated group be treated as a single taxpayer for all purposes.

Each of the consolidated companies must, however, calculate the tax expense that would have been recorded had an individual tax return been filed. Corporate income tax payable or receivable (tax credit) must be recorded depending on whether the company contributes a profit or a loss.

Corporate income tax is calculated based on book or reported profits obtained by applying accounting principles generally accepted in Spain, which does not necessarily coincide with taxable profits, which are understood to be the tax base.

The reconciliation between reported profits for 2007 and taxable profits is set out below:

Thousand euros

Book profit for the year 27,826 176 Corporate income tax 1,287 Other taxes -

Book profit for the year, before corporate income tax 29,113

Permanent differences (28,206) Timing differences: Increases arising during the year and in prior years: 7,725 Decreases arising during the year and in prior years: (8,602)

Prior year losses brought forward -

Taxable income 30

The breakdown of permanent differences when recognising expenses and income for accounting and tax purposes is as follows:

Thousand euros ECONOMIC AND FINANTIAL INFORMATION 2007 Dividends received during the year 13,090 Change in provisions for decline in value of investments 5,019 Charge to Joint Ventures 2,080 Charge to AIEs 8,987 Other, net (970) 28,206 Corporate income tax expense recorded in the profit and loss account is as follows:

Thousand euros Current year tax relating to the tax base contributed to 295 the consolidated base International double taxation deductions (645) R+D deductions (309) Other deductions (174) Effect of the change in tax rate 63 Loss for the year in AIEs 2,057 Tax charge 1,287

The breakdown of timing differences when recognising expenses and income for book and tax purposes, and the accumulated tax effect at 31 December 2007 is as follows:

Thousand euros Timing difference Tax effect Deferred tax assets 177 Pensions and similar obligations 6,867 2,060 Provisions 9,723 2,917 4,977 Deferred tax liabilities Capital gains on transactions with tangible fixed assets 552 166 Others 112 33 199

Deferred tax assets for pensions and similar obligations relate to the restatement of the tax effect of amounts deductible over the coming five years. This restatement has been applied based on the lump-sum group life insurance premium that structures pension commitments with retired employees that were externalised at 31 December 1999, in accordance with transitional provision sixteen of Law 30/95 (8 November), which was expressly declared in force in accordance with the provisions of Law 43/1995 (27 December).

In accordance with Law 24/2001 (27 December) tax losses from one year may be offset against profits obtained in the following fifteen years. In 2006 the tax group capitalised the tax-loss carryforwards that it had yet to apply at the year end. The order portfolio at the end of 2006 and the positive results that began to materialise in that year made it possible to calculate the amount recoverable from tax-loss carryforwards over the next three year up to the amount reflected in the annual accounts and there are currently no tax-loss carryforwards yet to be recognised.

At 31 December 2007 the Company does not record any tax-loss carryforwards yet to be offset.

All the Company’s tax returns for the years that have not become statute barred for the principal taxes to which it is subject are open to inspection by the tax authorities. Taxes may not be deemed definitively paid until the four- year lapsing period has expired. The Company’s Directors do not expect there to be any additional liabilities in the event of an inspection, for which reason no provision in this respect has been included in the annual accounts. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

16. INCOME AND EXPENSE

a| TRANSACTIONS DENOMINATED IN FOREIGN CURRENCY

Transactions carried out in foreign currency are as follows:

Equivalent in Thousand euros

Net purchases 2,587

Other external expenses 13,258

Sales 2,080

b| ANALYSIS OF NET TURNOVER

Net turnover from the Company’s ordinary activities may be analysed geographically as follows: 178 Market %

Spain 81 Abroad 19

100

Similarly, net turnover may be analysed by activity as follows:

Activity %

Industrial plants 0.2 Energy 98.0 Other 1.8

100 ECONOMIC AND FINANTIAL INFORMATION 2007

c| RAW MATERIALS AND CONSUMABLES Thousand euros 2007 2006 Consumption: - Net purchases 169,487 60,741 - Other external expenses 132,465 76,823

301,952 137,564 d| PERSONNEL COSTS Thousand euros 2007 2006 Wages, salaries and similar remuneration 18,789 16,861 Pension contributions and allocations 368 559 Staff welfare expenses 2,826 2,549

21,983 19,969 e| AVERAGE NUMBER OF EMPLOYEES BY CATEGORY

2007 2006 University graduates 115 108 Qualified technicians 56 49 Other technicians 84 70 Administrative staff 29 25 Other - 1 179 284 253 f| AVERAGE NUMBER OF MEN/WOMEN BY JOB CATEGORY

The distribution by generate at the year end of Group personnel is as follows:

Men Women Total Board Members 2 - 2 Top Management 5 - 5 Others 201 76 277 208 76 284 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

17. FINANCIAL INCOME AND EXPENSE

Net financial income/expense is composed as follows: Thousand euros 2007 2006 Profit: Income from shareholdings: - Group companies (note 6 b) 15,074 16,717 Income from other marketable securities and assets: - Non-Group companies 2,792 1,242 Other interest and similar income: - Group companies (note 6 b) 1,948 1,477 - Other interest 1,103 574 Gains on exchange 463 499 21,380 20,509 Less losses: Financial and similar expenses: - Amounts owed to group companies (Note 6 b) (1,071) (968) - Debts with third parties and similar expenses (869) (375) 180 Losses on exchange (856) (1,138) (2,796) (2,481) Net financial income/(expense) 18,584 18,028

18. EXTRAORDINARY PROFIT/(LOSS)

The heading extraordinary items is analysed below: Thousand euros 2007 2006 Profit: Profit on disposal of fixed assets taken to profit and loss (note 10) 726 358 Profit on disposal of tangible, intangible fixed assets 1,405 92 and controlling shareholdings 3,366 3,408 Extraordinary income 126 322 Income and profit brought forward - 6

ECONOMIC AND FINANTIAL INFORMATION 2007 5,623 778 Less losses: Loss on disposal of fixed assets - (4) Extraordinary expense (457) (29) (457) (33) Net extraordinary profit/(loss) 5,166 4,152 19. OTHER INFORMATION

a| DIRECTORS’ REMUNERATION

The amounts accrued by members of the Company’s Board of Directors for wages, per diems and other remuneration and similar items in 2007 totalled 1,780 thousand.

The amount of balances and transactions with companies pertaining to the Company’s Board of Directors is as follows:

(Note 6.b) Supplies and other operating expenses

TSK Electrónica y Electricidad, S.A. 12,629 PHB Weserhütte, S.A. 5 Arside Construcciones Mecánicas, S.A. 48

b| ARTICLE 127, 4.3 OF THE SPANISH COMPANIES ACT: INFORMATION FROM DIRECTORS OF SHAREHOLDINGS, OFFICES, FUNCTIONS AND ACTIVITIES IN COMPANIES WITH THE SAME, ANALOGOUS OR COMPLEMENTARY ACTIVITY: 181 For the purposes of Article 127 of the Spanish Companies Act (LSA) and in connection with the activities of the Board members, the following should be noted:

The Chairman, Mr. Juan Carlos Torres Inclán, holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Board Member INVERSIONES SOMIO, S.R.L. (current Vice-Chairman) holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Likewise, its representative on the Board, Mr. Juan Gonzalo Álvarez, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Board Member, Mr. José Luis García Arias (Vice-Chairman until 19 December 2007) holds a 37.78% interest in the company Cartera de Inversiones Melca, S.L., which is in turn the single shareholder of Arside Construcciones Mecánicas, S.A., a company engaged in activities the same as or similar or complementary to those of Duro Felguera, S.A.

The Director INVERSIONES EL PILES, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Ángel Antonio del Valle Suárez, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director CONSTRUCCIONES URBANAS DEL PRINCIPADO, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Javier Sierra Villa holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Neither does its former representative on the Board, Mr. Manuel González González (representative on the Board until 26 November 2007) engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. at that date.

The Director CONSTRUCCIONES TERMORACAMA, S.A. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. Ramiro Arias López, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

The Director RESIDENCIAL VEGASOL, S.R.L. holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. Additionally, its Board representative, Mr. José Antonio Aguilera Izquierdo, does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director Mr. Marcos Antuña Egocheaga holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director Mr. José Manuel Agüera Sirgo holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A.

The Director Mr. Acacio Faustino Rodríguez García holds no shares or offices in companies whose activities are the same as or similar or complementary to those of DURO FELGUERA, S.A. He does not engage in any activities on his own account or on the account of third parties that are the same as or similar or complementary to those of DURO FELGUERA, S.A. He is the Managing Director of the consultancy UNILOG, 182 which engages in business advisory services, and is occasionally required to take minor shareholdings in companies whose activities are the same as or similar or complementary to those of Duro Felguera, S.A. However, these are not controlling interests and generally relate to companies operating in a different market segment from DURO FELGUERA, S.A.

The former Director TSK ELECTRONICA Y ELECTRICIDAD, S.A. (Board Member until 25 April 2007) is engaged in an activity complementary to that of Duro Felguera, S.A. Its representative on the Board of Directors, Mr. Sabino García Vallina, was the CEO of TSK ELECTRONICA Y ELECTRICIDAD, S.A. and was also a Director of the company PHB WESSERHÜTE, S.A.

The former Director PHB WESSERHÜTE, S.A. Board Member until 25 April 2007) is engaged in an activity that is similar and complementary to that of Duro Felguera, S.A.. Additionally, its former Board representative, Mr. Carlos Vento Torres, was the commercial representative of the Dutch group NEM BV, which designs and manufactures steam recovery boilers, an activity that is similar or complementary to that of Duro Felguera, S.A., at that date.

c| ENVIRONMENTAL INFORMATION

The Group has taken the necessary measures to protect and improve the environment and to minimise

ECONOMIC AND FINANTIAL INFORMATION 2007 environmental impact, if applicable, in compliance with current environmental legislation.

d| AUDIT FEES

The fees charged in 2007 by PricewaterhouseCoopers Auditores, S.L. for audit services amounted to 99 thousand.

20. JOINT VENTURES AND BRANCH OFFICES

a| JOINT VENTURES

The Group is involved in a number of joint ventures together with other companies. The Group’s interest in the operating funds, receivables and payables of the joint ventures, as well as transactions with the joint ventures, are eliminated when the joint venture’s balance sheet and profit and loss account items are proportionally integrated. Any surplus (or shortfall) in balances paid to the other members remain in the balance sheet. A breakdown of joint ventures at 31 December 2007 and the stake in each one, together with other information, is set out below:

Thousand euros

% Share Result for Company Activity Address interest capital Reserves the year

UTE C.C.San Roque Civil works – combined cycle plants Madrid 50% 6 3,782 - UTE C.C. Besos Civil works – combined cycle plants Madrid 50% 6 3,717 - UTE C.C. Castejón Civil works – combined cycle plants Gijón 50% 6 19 - UTE C.C. Puentes Civil works – combined cycle plants Gijón 50% 10 23,116 (5,205) UTE C.C. Barranco II Civil works – combined cycle plants Gijón 50% 10 20,241 1,228 UTE C.C. Barcelona Civil works – combined cycle plants Madrid 50% 10 80,425 1,641 UTE C.C. Tierra Amarilla C.T. Chicle simple Gijón 90% 6 12,538 2,311 UTE Genelba Expansion of thermal plant Gijón 70% 10 2,594 - UTE C.C. Besós V Combined cycle thermal plant Madrid 50% 10 48,490 91

b| BRANCH OFFICE 183 As is indicated in Note 3 t) the Company has two branch offices. Duro Felguera S.A., Sucursal Mexico was created on 15 January 2002 and its corporate purpose is the assembly, maintenance and operation of metal- mechanic equipment and installations. Duro Felguera S.A., Stabile Organizazione in Italy was created on 15 September 2006 and its corporate purpose is the turnkey construction of a desulphurisation plant at C.T. de Monfalcone (Italy).

The most significant transactions, in thousand euros, carried out by these branch offices and included in the accounts for Duro Felguera, S.A. in 2007 were as follows:

Branch in Mexico Branch in Italy Net turnover (844) (26,805) Raw materials and consumables 2,299 30,319 External services 940 3,001 Staff costs - 509 Change in trade provisions (1,739) 2,892 Net financial results (343) 143 2007 loss/(profit) 313 10,059

21. POST-BALANCE SHEET EVENTS

At the Board of Director’s meeting held on 28 February 2008, a Resolution was adopted to pay a second interim dividend against 2007 results totalling 0.15 per share. Additionally, the General Meeting of Shareholders will be asked to adopt a supplementary dividend of 0.08 per share. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

22. GUARANTEES AND OTHER CONTINGENCIES

At 31 December 2007, the Company had directly or indirectly provided the following guarantees, which basically relate to sales agreements and security for loans and guarantees:

Thousand euros

Técnicas de Entibación, S.A. 900 Felguera Construcciones Mecánicas, S.A. 5,805 Duro Felguera Plantas Industriales, S.A. 80,542 Felguera Grúas y Almacenaje, S.A. 11,000 Felguera Calderería Pesada, S.A. 3,775 Felguera Melt, S.A. 2,179 Felguera Rail, S.A. 8,872 Operación y Mantenimiento, S.A. 3,472 116,545

184 In addition, at 31 December 2007 the Company recorded the following commitments: Thousand euros

Multi-user guarantee and credit facilities 228,319 Guarantees for sale agreements in the process of enforcement 216,555 Other 3,175 448,049 ECONOMIC AND FINANTIAL INFORMATION 2007 23. STATEMENT OF SOURCE AND APPLICATION OF FUNDS

Set out below is the statement of source and application of funds for 2007 and 2006:

Thousand euros Thousand euros APPLICATIONS OF FUNDS 2007 2006 SOURCE OF FUNDS 2007 2006

Purchases of fixed assets 33,679 1,200 Funds generated from operations 25,308 23,006

Formation expenses - 99 Long-term debt 21,967 - Intangible fixed assets 10,047 85 Tangible fixed assets 8,396 863 Deferred income - 25 Investments 15,236 153 Disposal of fixed assets 1,865 104

Deferred expenses 2,744 - Tangible fixed assets 921 104 Investments 944 - Dividends and attendance premiums 19,077 10,112

Repayment or reclassification to short-term of long-term liabilities 9,000 7,745 Early redemption or reclassification to short-term of investments 2,656 4,774 Bank loans and overdrafts - 7,745 Debts of Group companies 9,000 - Other investments 2,656 4,774

Provisions for liabilities and charges - 3 Uncalled amounts on shares held 5,900 16 Reclassification to long-term of investments - 212 Group companies 5,900 16 Total applications of funds

Excess sources over applications (Increase in working capital) 64,500 19,272 Total sources of funds 57,696 27,924

Excess of applications over sources of funds 8,652 (Decrease in working capital) 6,804 185 DURO FELGUERA 07 ANNUAL REPORT DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

a| CHANGE IN WORKING CAPITAL

Thousand euros 2007 2006 Increases Decreases Increases Decreases Inventories 126 - - (2,317) Receivables 53,858 - 11,983 - Creditors - (107,768) - (82,079) Current asset investments - (16,984) 117,638 - Cash at bank and in hand 63,964 - - (36,600) Prepayments and deferred income - - 17 -

Total 117,948 (124,752) 129,638 (120,986)

Change in working capital (6,804) 8,652

186 b| CALCULATION OF FUNDS GENERATED FROM (ABSORBED BY) OPERATIONS

Thousand euros 2007 2006 Profit for the year 27,826 27,619

Increases:

Reversal of deferred tax assets 285 2,699 Fixed asset depreciation/amortisation 418 263 Allocation to the provision for pensions and similar obligations 357 559 Losses on sale of tangible and intangible fixed assets - 4

Total increases 1,060 3,525 ECONOMIC AND FINANTIAL INFORMATION 2007 Decreases:

Prior year taxes capitalised - (4,282) Deferred income taken to profit and loss (744) (358) Profit from tangible and intangible fixed assets (1,405) (92) Net reversal of the provision for investments (1,429) (3,408)

Total decreases (3,578) (8,139)

Total funds generated from operations 25,308 23,006 DURO FELGUERA, S.A. Directors’ Report 2007

In 2007 the Company Duro Felguera continued its dual role as the Group holding company and the direct developer of the Group’s energy projects.

During the year the Company has increased its turnover from euros 212 million last year to euros 409 million this year, leading to an increase in gross operating profit from euros 0.7 million to euros 8.7 million. During the year provisions for guarantees for projects under constructions have been set up in the amount of euros 2.9 million while last year provisions were reversed totalling euros 1.5 million, which is normal for the completion of a project cycle.

The Company has had financial income of euros 21.4 million from dividends from subsidiaries, basically, and form the sale of land and the reversal of provisions for certain subsidiaries in the manufacturing area which valuation in the balance sheet was impacted by losses in the past. These sales and reversals represent euros 3.4 million. Both the dividends received and the reversals of provisions are very similar to last year.

Profit before tax has risen from euros 24.1 million to euros 29.1 million. 187

In turn, Duro Felguera, S.A. benefits from the tax consolidation of the group by applying deductions for difference items. Tat is why corporate income tax expense has risen to euros 1.3 million against the profit mentioned above. Last year the existence of tax loss carryforwards from prior years had led to the recording of income of euros 3.5 million. These tax loss carryforwards were used up entirely last year.

During the year office buildings have been acquired for euros 9.8 million that were financed through leases. Interest- free loans for research and development have also been included in the amount of euros 10.1 million.

The Energy line has concluded contracts totalling euro 587 million, of which euros 129 million were in international markets. These figures are significantly higher than the average of the last three years. The portfolio at 31 December was euros 764 million. The operating profit for the Energy areas has totalled euros 15.9 million.

In line with this expansion phase in terms of contracts, prepayments by customers have boosted the Company’s treasury to euros 218 million. Of this amount, euros 64.5 million was held in current accounts in Joint Ventures with other partners, remunerated at high interest rates by the banking market at the end of 2007.

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risks), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise the potential adverse effects on the Group’s financial performance. The Group uses, to a limited extent, derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a Risk Committee comprising the Chairman of the Board of Directors and the Corporate General Manager, who are advised by the legal counsel and by Finance Management, under policies approved by the Board of Directors. The Risk Committee identifies and evaluates all types of risks. Financial risks are hedged by Financial Management in close cooperation with the Group’s operating units. 07 ANNUAL REPORT ANNUAL FELGUERA 07 DURO DURO FELGUERA, S.A. ANNUAL ACCOUNTS AND 11 MANAGEMENT REPORT FOR 2007

The average number of employees in 2007 was 284, which is 12% higher than the previous year. There have been no substantial changes in the distribution of employees by category.

During 2007 the Company did not capitalise any research and development expenses.

The Company does not hold any of its own shares.

During 2007 the Company did not incur any significant environmental expenses and there are no relevant risks deriving from the activity carried out.

188 ECONOMIC AND FINANTIAL INFORMATION 2007